Salient to Investors:

A. Gary Shilling at A. Gary Shilling & Co writes:

The total labor-force participation rates tend was 63.5 percent in June 2013 versus 67.4 percent in early 2000.

The participation rates of 16-to 24-year-olds has declined sharply since 2000 as slow economic growth, limited jobs and rising unemployment rates have encouraged them to stay in school or otherwise stay out of the labor force.

Participation rates for 65 to 75-year-olds and for 75 and older have risen since the late 1990s because they have been forced to work longer than planned as many were devastated by the declines in stocks from  2000-to-2002 and from 2007 to 2009 – 2 of only 5 drops of more than 40 percent in the S&P 500 Index since 1900. And the collapse of over 30 percent in house prices wiped out the equity that many had counted on for retirement – 20 percent of home mortgages remain under water.

Increasing life spans mean many older people are able to work longer, curtailing job opportunities for younger people.

In the 1880s, 78 percent of men 65 and older worked; in 1990, that figure was 16.3 percent and in 2010 it was 22.1 percent. When Social Security was enacted in 1937, the life expectancy for American men was 65, the required age for drawing benefits. Today, life expectancy is 76.3 for men and 81.1 years for women, but the required age has risen to only 67.

The US ranks 17th in life expectancy among developed countries, including wealthier, college-educated Americans. The primary reason is the high mortality of men under 50 because of accidents and violence. Women’s life expectancy gains have fallen behind those of other rich countries. Americans who live past 75 have higher life expectancy than people in many other similar countries.

The effect of an aging population is a serious concern for all developed countries, but most significantly for Japan, whose people live longest and where there is no immigration.

The US, Canada and Australia are relatively open to immigrants, and because they tend to be younger, they help support retirees. The ratio of working-age people to retirees is dropping in all G-7 countries – by 2040 to 1.5 in Japan, to below 2 in Europe, to 2.9 in the US, and 2.5 in Canada.

The labor-force participation rates for older age groups will continue to increase as baby boomers are forced to reconcile their low retirement savings with increased life spans and rising medical costs. Social Security and Medicare will provide less of a safety net as Congress is forced to deal with rising entitlement costs.

From February 2000 to June 2013, demographics accounted for 2.5 percent of the 4 percent  decline in the overall participation rate from 67.4 percent to 63.5 percent. 1.6 percent of the decline was due to non-demographic reasons by young and middle-aged people.

Half of recent graduates are working in jobs that don’t require a college education. Surveys show that the income of those who are unemployed or underemployed in the first few years after graduation never catch up with those who immediately found well-paid positions.

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