Retired 20-somethings cloud Janet Yellen's crystal ball on job market

The share of 20- to 24-year-olds in the US who say they're retired doubled from 2004 to 2014.
The share of 20- to 24-year-olds in the US who say they're retired doubled from 2004 to 2014. Photo: Andrew Quilty

How come more people are retiring in their early 20s? Why are middle-aged men becoming stay-at-home dads? What's keeping women out of the workforce other than illness, kids or school?

Those are some of the questions raised in a new US Bureau of Labor Statistics report that shows changes over the past decade in why people stay out of the labour force. Finding answers is key for the US Federal Reserve as it maps the contours of a job market that's becoming harder to predict with the ageing of the baby boomers and shifting household priorities.

Here's what the bureau found, broadly: Thirty-five per cent of the US population wasn't in the labour force in 2014, up from 31.3 per cent a decade earlier. (People are considered out of the workforce if they don't have a job and aren't looking for one. That's distinct from the official unemployment rate, which tracks those out of work who are actively job hunting.)

A closer look reveals more about the shifts in the reasons some people forego a pay cheque. In all age groups, for instance, more people cited retirement as the reason for being out of the labour force, and it wasn't just older people.

For Americans between the ages of 20 and 24, the share of those sidelined over the past decade because they were in school increased, unsurprisingly, during the decade that included the Great Recession. What's more unusual is that the share of 20- to 24-year-olds who say they're retired doubled from 2004 to 2014.

Other reasons for not working are also on the rise. More men between 25 and 54 cited home responsibilities, while women of the same age range increasingly point to illness or school as the leading cause. The data also show, perhaps not surprisingly, that men and women without a high-school diploma are more than three times as likely to be out of the workforce than their peers with a college degree.


Demographic changes aren't the only pieces of the puzzle that have changed the employment landscape since 2004. The BLS report showed that among male veterans between 25 to 54 years old, the number who reported a service-connected disability rose to 1.2 million in 2014, from 726,000 in 2003. That rise coincides with US military combat in Iraq and Afghanistan.

Fewer people willing or able to take a job might eventually cause a shortage of workers, leading to surge in wages and longer-term inflationary pressures, according to Princeton University economist Alan Blinder, a former Fed vice chairman.

"We're going to be running out of labour as we go through time,'' Blinder said on Bloomberg Television on December 31.

Understanding why people aren't in the workforce - and whether it's permanent or temporary - is important for the Fed. Policy makers are trying to estimate remaining slack in the labor market and the outlook for inflation as they weigh the timing of the next interest-rate increase.

But as chair Janet Yellen told a press conference on December 16, after the central bank lifted rates for the first time since 2006, it may be a while before Fed policy has to contend with an actual labour shortage.

``The labour-force participation rate is still below estimates of its demographic trend, involuntary part-time employment remains somewhat elevated, and wage growth has yet to show a sustained pickup,'' she said.

Officials will get more information when the Labor Department releases December's payroll report on Friday. Economists surveyed by Bloomberg News expect that employers added 200,000 last month, compared with 211,000 in November, while unemployment rate probably stayed at 5 per cent.