Study refutes theory that workers returning to the job market will jack up the unemployment rate

Another article in today's Richmond Times-Dispatch has this headline. "Older workers are exiting fast, shrinking the labor force, study says."

The authors of the study, economists at Barclays Capital, said (emphasis added),"Based on our reading of the evidence, the conventional view that in recoveries the unemployment rate will stop falling and even start to rise because of surging labor force participation rates amounts to something of an urban legend. Such an event has not happened in the past, and we do not believe it will this time either."

In other words, the unemployment rate will probably not increase as the economy improves due to disheartened people returning to the work force to look for jobs.

While having people permanently exit the work force has, by itself, a positive impact on unemployment rates, the article notes that a smaller work force means, all else being equal, slower economic growth. The article didn't mention that many retirees still have significant disposable income.When a person leaves the work force, it does not mean he or she will suddenly stop spending any money at all.

The article also does not address the impact that increasing worker productivity has on economic growth. My guess is the negative impact on economic growth of a smaller work force will be so small as to be unnoticeable by most of us and by most economists.

Economy moving upwards

Job and trade data show an improving economy. Both new unemployment claims and the trade deficit fell in most recent federal reports. A Reuters article is here.

For September, American manufacturers reported the most new orders since July 2008. As seems reasonable, stocks of those companies have increased in price. A Bloomberg article is here.