Have you ever considered the possibility that Dr. Laurence J. Peter’s theory of people rising to their own level of incompetence at their jobs applies to politicians?
 
I have.  Especially when I watch Federal Reserve chairmen speak before Congress, and one of the most brilliant economic minds in our nation is inundated with inane and nonsensical questions from senators and representatives whose goal is either to make themselves appear intelligent in front of the camera, or to advance a specious yet politically motivated economic position irrespective of its viability.

A fine example of this occurred during Alan Greenspan’s semi-annual testimony before Congress this month.  During the question and answer phase, rather than actually ask the Fed chairman a question, Barney Frank (D-MA) practically spent his entire allotted time asserting that the economy is not performing as well as Mr. Greenspan stated in his opening remarks.  (See “Peter Principle.”)

In his sermon, Representative Frank referenced a Boston Federal Reserve study suggesting that millions of people have dropped out of the job market in the past several years -- all undoubtedly the fault of Bush administration fiscal policies -- and, as a result, today’s unemployment rate is drastically overstating the current labor picture.

In response, Mr. Greenspan diplomatically stated, ''We at the board do have some questions about the Boston Federal Reserve study. We think that certain calculations that were made at the Boston Fed inadequately captured what was going on."

Predictably, this study was again referenced by a Democrat during Mr. Greenspan’s visit to the Senate the very next day.  At this time, the Fed chairman reiterated his concerns about the efficacy of the data in the report while suggesting that the leveling off of women entering the workplace, as well as the acceleration of retirees, better address the statistical aberrations in this study than the negative economic conclusions proffered.

At issue is the current labor force participation rate being expressed in the Bureau of Labor Statistics and Census Bureau’s monthly Household Employment Survey.  One obtains this percentage by dividing the labor force (everybody aged 16 or greater that is currently employed or has looked for a job within the past 12 months excluding folks in the military) by the civilian non-institutional population (everybody aged 16 or higher excluding inmates and members of the military). 

After World War II, this participation rate stayed in a tight range between 58 and 60%.  However, starting in the mid-1960’s, this number began rising until leveling off around 67% in 1997.  Since then, it has fluctuated between 65.8 and 67.2%.

So why the controversy?  Well, the left -- always trying to depict the economy as collapsing when it’s not in power -- is avowing that since this participation rate has not improved during the current recovery, the economy must be doing poorly.  (See “Peter Principle.”) 

Contrarily, and as Mr. Greenspan suggested, there have been a number of recent demographic changes that quite easily explain this anomaly. 

First, at the end of World War II (earliest data is from 1948), the female labor participation rate was 32%.  As large numbers of women began to enter the labor force in the mid-1960’s, this rate exploded until hitting 60% in 1997, coincidentally at the same time that the total participation rate was also peaking. 

Since then, the female participation rate has fluctuated between 58.8 and 60.3%.  What this suggests is that the movement of women into the workplace likely peaked about eight years ago, supporting Mr. Greenspan’s assertions on this matter. 

As for the male side of the equation, their participation rate was 87% in 1948.  However, this number has basically declined every year since to the current 73%.  In fact, it even dropped during the Clinton “boom” years, but you didn’t hear any Democratic members of Congress suggesting that the world was coming to an end as a result, did you?

So how do we explain this fourteen percent drop in male participation in the labor force during six decades of economic growth?  Simple:  We’re living longer today than we were 57 years ago, and mortality rates typically do nothing but go UP!

As such, it is quite intuitive that as women and baby boomers of both sexes began flooding the labor market in the sixties, the participation rate would explode.  However, as the baby boom parents began to retire and live MUCH longer than the generation before them, the participation rate was guaranteed to eventually peak and roll over UNLESS the baby boomers produced more offspring than their parents did.

As we know this not to be the case, and since we are also keenly aware that the fastest growing segment of our population today is the retirees, it should be quite clear to anyone with even a remedial understanding of statistics why the participation rate is no longer expanding.  (See “Peter Principle.”) 

Maybe even more important, as the baby boomers retire, and the mortality rate continues to increase with ever-improving medical procedures and pharmaceutical products, this participation rate is guaranteed to continually decline. 

Of course, this metaphysical certitude won’t prevent elected officials from misstating the cause whenever it’s politically expedient.  (Ditto!) 

Noel Sheppard is a business owner, economist, and writer residing in Northern California.

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