"relatively low and relatively stable"

I'm still looking for an explanation of the 1955 increase in the Labor Force Participation Rate. I figure it was caused by return to civilian life after the Korean war. But I hesitate to say it because the timing seems off, and because I should be able to find something on the internet that actually identifies the cause of that 1955 increase. However, that's not my topic just now.

Unmentionables

According to The Rise and Fall of Labor Force Participation in the U.S. at the St. Louis Fed,

If you know only one aspect of the data on labor force participation, it should be this: Labor force participation used to be relatively low, it rose during the 1970s, 1980s and 1990s, peaking in 2000, and it has generally been declining since 2000.

That's great, if you only want to know the one thing. 

Here's their next thought:

From 1948 to 1966, the labor force participation rate was relatively low and relatively stable, averaging 59.1 percent.

Low and stable. Except for a one-year increase of more than two percentage points, which shall go unmentioned. 

Unmentioned. I wonder why that is.

Here, some of my notes that didn't make it into the 13 April post:

The Labor Force Participation Rate (LFPR) shows the percentage of the working-age population that has a job or wants one. When baby-boomers reached working age, the rate went up. When women in the workforce became a thing, the rate went up. The LFPR increased from 58.6% in January 1965 to 66.8% in January 1990, or 8.2 percentage points in 25 years. A remarkable increase.

The LFPR increased from 58.1% in December 1954 to 60.2% in December 1955, or 2.1 percentage points in just one year. A remarkable rate of increase. If it had continued at that rate, it would have equaled the 1965-1990 increase in less than four years.

Not worth a mention?

Productivity

In the 1950s, cost-push inflation was sometimes attributed to low productivity.

In The Wage-Push Inflation Thesis, 1950-1957 Lowell E. Gallaway (1958) wrote:

Simply stated, the wage-push inflation thesis holds that money wage rates have increased more rapidly than physical productivity and, consequently, have exerted upward pressure on costs and prices.

 In Time magazine, 15 July 1957, we read:

General Motors set up the first automatic "annual improvement factor" increase in wage contracts in 1950

and

The upward trend of wages was due not only to the scarcity of labor but also to the spread throughout industry of the G.M. idea of automatic increases. This ran counter to traditional business practice because it placed emphasis on a long-term rise in productivity and kept wages rising even when productivity temporarily stopped rising (as it did last year) or business temporarily slackened (as in steel and autos this year).

Note that they knew in 1957 that productivity "stopped rising" in 1956. That is the productivity problem I attribute to the 1955 increase in the Labor Force Participation Rate.

Note also that a decline in productivity increases labor cost to business, just as wage hikes do. It would be a simple mistake to blame wage hikes when the problem was low or falling productivity. But you couldn't fix the problem by holding wages down, not in the 1950s, and not since the 1980s.

In the early 1960s, productivity was still sharply in focus. In 1996 the L.A. Times recalled that President Kennedy

used a tactic his economic advisor, Walter W. Heller, called “jawboning” to urge business and labor to behave responsibly. In Kennedy’s time, that meant pay increases shouldn’t exceed productivity gains--and price hikes shouldn’t exceed increases in wages.

And again:

In his [January 11] 1962 State of the Union, Kennedy declared, “Our first line of defense against inflation is the good sense and public spirit of business and labor--keeping their total increase in wages and profits in line with productivity.

Networker writes:

Kennedy, since the Inaugural Address and beyond, had been asking Americans and American business to exercise restraint to enable the United States to meet its obligations and strengthen its economy. The Steel Workers of America agreed to hold off their demands for higher wages if the Steel Companies, on their part, would not raise the price of steel. The workers kept their end of the bargain, the companies did not, ordering a price increase after a strike was averted. This dishonest and irresponsible act angered Kennedy, as is made clear in the following speech.

Then, from Kennedy's April 11 1962 speech:

... there is no justification for an increase in steel prices. The recent settlement between the industry and the union, which does not even take place until July 1st, was widely acknowledged to be noninflationary, and the whole purpose and effect of this Administration's role, which both parties understood, was to achieve an agreement which would make unnecessary any increase in prices.

In his very next sentences, again, productivity was central:

Steel output per man is rising so fast that labor costs per ton of steel can actually be expected to decline in the next 12 months. And in fact, the acting Commissioner of the Bureau of Labor Statistics informed me this morning that, and I quote, "employment costs per unit of steel output in 1961 were essentially the same as they were in 1958."

It's a good speech. Kennedy was angry. He called for "a higher sense of business responsibility for the welfare of their country".

It's not like Kennedy didn't know about productivity and cost. He knew. He was focused on it. And he tried to keep prices from rising.

It didn't work. I wonder why that is.

Another unmentionable

Why didn't it work? This wasn't the latter 1950s. The economy was not adjusting to a sudden increase in labor force participation. Nor was it the latter '60s, nor later. The big change in labor force participation due to the Baby Boom and Women In the Workforce had not yet begun. It was 1962. Productivity growth was high again. Where was the problem?

I'll go back to saying what I always say: Debt was accumulating. The cost of finance was rising. Surely, by the time interest on household debt was taking more than 5% of employee compensation, people considered it part of the cost of living. Surely, rises in our paychecks had to cover the rises in our interest payments.

Annual Household Interest Costs as a Percent of Employee Compensation
Interest Costs go above the 5% level (red) before 1960

Annual Household Interest Costs, Growing as a Percent of GDP

And with household interest cost growing faster than GDP from 1946 to 1986, wage hikes that just covered the interest cost would surely have looked like inflationary increases. Looked inflationary, and were inflationary.

People were covering their costs. It was cost-push inflation, due to the rising cost of finance. It looked like inflationary wage increases for a reason. But finance didn't get the blame. Wages did.

Come to think of it, the policies that encouraged all that borrowing didn't get the blame, either. I wonder why that is.