Teenagers in the labor force

There's been a fair amount of discussion in the last year or two about whether the declining labor force participation rate is painting a misleading picture of the U.S. employment situation.

David Altig of Macroblog and Barry Ritholtz of The Big Picture went toe-to-toe on this issue the other day with no clear winner and, as always, a complex topic such as this is easily shaped and molded to conform to the beliefs that each reader already holds as evidenced by the comments in each of these posts.

As a result of perusing these recent discussions, a perhaps more important item was touched on very briefly, but escaped the attention of both the authors and most of those leaving comments - the rapidly declining labor force participation rate by teenagers.

After recalling numerous anecdotal accounts of the quandaries facing 16 to 19 year olds as they reach working age, a closer look is warranted.

First, a definition of the labor force participation rate from Wikipedia:

In the United States, the labor force is defined as people 16 years old or older who are employed or looking for work.
...
Normally, the labor force consists of everyone of working age (typically above a certain age (around 14 to 16) and below retirement (around 65) who are participating workers, that is people actively employed or seeking employment. People not counted include students, retired people, stay-at-home parents, people in prisons or similar institutions, as well as discouraged workers who simply do not want work.

The ratio between the labor force and the overall size of their cohort (national population of the same age range) is known as the labor force participation rate (total labour force/cohort).

So, when looking at the entire population of 16 and over, there was a clear decline in the participation rate beginning in 2001 that reversed a bit in 2005 as shown in the chart below.

Many now make the case that, due to a smaller labor force participation rate, an increasing number of unemployed workers can actually result in a lower unemployment rate.

The accuracy and relevance of the unemployment rate will continue to be a topic of debate and the data going back to just after World War II above reminds us all of how women in the workforce have prompted many and varied cultural changes (perhaps a topic for another day).

However, the more important cultural changes related to employment may be occurring today in the participation rate of teenagers as shown in the chart below.

After rising steadily since the mid-1960s and peaking at almost 60 percent in 1978, the percent of 16 to 19 year olds either working or looking for work has declined to a new all-time low of just over 40 percent.

The decline from 50 percent in just the last five years - the steepest change on record - occurred at about the same time of the late, great American housing boom.

Having no offspring of any age with whom to consult and not having searched for any studies on this topic, any and all conclusions made here rely on anecdotal accounts which may or may not represent the reality on the ground.

To wit:

1. Since many homeowners are now wealthy beyond their wildest dreams and have been tapping their home equity in recent years and spending freely, teenagers feel less of a need to go out and earn money when Mom and Dad will buy them what they want.
2. Working at minimum wage to fund the purchase of the latest electronic gadgets or a car of their own is wholly impractical today.
3. Items 1 and 2 above are not good developments for the long-term health of both the economy and the workforce.

As many others who came of age in the 1970s will surely agree, there was a very different consumption pattern and work ethic for teenagers at that time - of course their parents weren't gorging on plasma TVs and BMWs either.

Your thoughts?