If the same percentage of adults were in the workforce today as when Barack Obama took office, the unemployment rate would be 11.1 percent. If the percentage was where it was when George W. Bush took office, the unemployment rate would be 13.1 percent.
That helps explain a seeming contradiction in the unemployment numbers — the rate keeps dropping even though job creation has been soft.
In April, the U.S. economy added a mere 115,000 jobs, according to Bureau of Labor Statistics data released Friday. In a normal month, that would not even be enough to keep up with new entrants into the labor market. But in this economy, it was enough to drive unemployment from 8.2 percent down to 8.1 percent, the lowest point since January 2009.
The explanation is a little-watched measure known as the “labor force participation rate.” That tracks the number of working-age Americans who are holding a job or looking for one. Between March and April, it dropped by 342,000. But because the official unemployment rate counts only those workers who are actively seeking work, that actually made the unemployment rate go down.
Critics of the Obama administration have been quick to seize on this as the real reason for the falling unemployment rate. In February, the Republican National Committee released a research note on ” The Missing Worker,” arguing that “over 3 million unemployed workers have called it quits due to Obamanomics.”
Economists say the story is considerably more complicated. For one thing, the trend predates President Obama. And while part of the story is clearly that the labor force is shrinking because the bad economy is driving workers out, another significant factor is that baby boomers are beginning to retire early — a trend that has worrying implications for future growth.
The percentage of Americans in the labor force has been declining for more than a decade. In January 2000, 67.3 percent of Americans had a job or were actively seeking work. By 2007, just before the recession, that had fallen to 66 percent. In January 2009, the month Obama assumed the presidency, it was 65.7 percent. Since then, it has fallen to 63.6 percent, a level not seen since the first year of the Reagan administration.
The implications for returning to what economists call “full employment” are significant. According to calculations by Michael Greenstone of the Hamilton Project, if the labor force grows by 90,000 a month, then an economy creating 200,000 jobs a month would take about eight years to return to full employment. If the labor force grows by 125,000 a month — plausible if discouraged workers begin returning to the labor force — it will take almost 14 years to return to full employment.
It’s easy to see why some workers would, in the current environment, get discouraged and stop looking for work altogether. There are about 3.7 job seekers for every available opening.
“We’re not going to see the labor force tick back up until there are enough opportunities that the people who enter aren’t faced with months of fruitless job searches,” said Heidi Shierholz, an economist at the Economic Policy Institute.
Once the economy improves, the theory goes, more workers will start searching for jobs and the unemployment rate will bounce back upward.
The more worrying possibility is that workers discouraged by bleak job prospects will find themselves unable to return to the labor market even after it improves. About 41 percent of the unemployed have been out of work for more than 27 weeks, and economists have found that as workers remain jobless for extended periods of time, their skills erode, their work contacts move on, their motivation wanes and they have difficulty returning to the labor force when the economy picks back up. They move from being unemployed to being almost unemployable.
But a number of economists are arguing that the recession is distracting people from the real story — long-run demographic trends that have nothing to do with the current economy. Baby boomers are starting to retire en masse, which means that there are fewer eligible American workers.
Demographics have always played a big role in the rise and fall of the labor force. Between 1960 and 2000, the labor force in the United States surged from 59 percent to a peak of 67.3 percent. That was largely due to the fact that more women were entering the labor force while improvements in health and information technology allowed Americans to work more years.
But since 2000, the labor force rate has been steadily declining as the baby-boom generation has been retiring. Because of this, the Federal Reserve Bank of Chicago expects the labor force participation rate to be lower in 2020 than it is today, regardless of how well the economy does.
In a March report titled “Dispelling an Urban Legend,” Dean Maki, an economist at Barclays Capital, found that demographics accounted for a majority of the drop in the participation rate since 2002.
And what about the most recent downturn? Based on survey data, Maki found that about 35 percent of Americans who have dropped out of the labor force since the recession began in 2007 do want a job, but they have become too discouraged to fire off resumes. That’s a sign of a weak labor market. But the other 65 percent are people who have left the labor force and do not want a job. The biggest chunk of that group seems to be composed of baby boomers, those 55 and older, who have decided to retire early.
That suggests, Maki and his colleagues wrote, that unemployment will not necessarily start ticking up again as the economy keeps adding jobs, as many people expect.
“Such an event has not happened in the past and we do not believe it will this time either,” they argued.
Other reports find a smaller — but still significant — role for demographics. The Chicago Fed estimates that retirements accounted for only about one-quarter of the drop in labor force participation since the recession began.
One thing that makes it hard to predict future retirement trends, Greenstone says, is that it is unclear how many older Americans will postpone retirement and work longer to rebuild their 401(k)s and retirement savings that were battered by the recession. That would increase the size of the labor force in the coming years.
“We’ve seen some indication of this recently,” Greenstone said. “But we still don’t know if it’s a short-term blip or long-term trend.”
How fast the labor force shrinks will also have implications for future U.S. growth prospects. The Barclays report, which argues that older workers are retiring more quickly than most economists had assumed, projected long-run economic growth at around 2 percent. That’s significantly lower than the Federal Reserve’s forecast of somewhere between 2.3 percent and 2.6 percent.
Free Trade has destroyed America and it’s work force! The U.S. government isn’t going to fix this problem. Therefore the only way to fix this on going trend, is Americans need to stop buying cheap imported junk from China.
I agree with the premise of your comment, but the part about not buying Chinese goods is next to impossible. A while ago, I made my only visit to a Target store and looked up and down every isle to see what wasn’t from China: Nothing Nada Zilch!
The only thing that may change that is the rise in the cost of China’s labor, causing more and more manufacturers to come back to the USA (albeit lower wage jobs).
My brother in law spends a lot of time in China importing restaurant and institutional kitchen supplies (basically pots and pans). He’s now looking for American suppliers because of the rising costs over there.
Or get rid of minimum wage laws, so we can make all our cheap junk right here .
I’ll bet that’s the Romney agenda after all, gota make sure those Wall street folk don’t loose any money. Problem is houses are $200000, gas $4.00 a gallon along with the high prices of groceries, then you got to have a car to get back and forth to work, which means you got to have auto insurance, just to mention a few things. Oh, and let’s not forget the national debt that the working poor will have to pay due to the way our unfair, unbalanced tax system is set up right now that will probably change though in 2013, only due mostly to republicans whose terms are up being voted out, and replaced by democrats who will most likely roll back the Bush tax cuts. I think the only way to get America back on track is to get rid of free trade, bring decent paying jobs back to America, hold politicians accountable for their poor decisions,cut their pay by at least half, then let Wall Street eat the losses. The above things I’ve mentioned is only the tip of a huge iceberg.However it would be a turn in the right direction,where as to continue on the same path America has been on for the last twenty years will bring this once great country to total decimation, if it’s not already to late for any type of desirable recovery.
More nonesense to cover the current admins weak performance on the homefront. Are Americans any better now than they were when Gee Dub was president? The healthcare reform has hundreds of med companies scrambling to outsource a lot of jobs before the tax increase kicks in. The med device and pharm companies were the one bright spot during the Barack Obama Depression era years and with the help of Nancy Pelosi and Harry Reid managed to wreck that sector too. Nice job. The government has done a really good job of dividing the masses, so if you are a senior level executive, you can make a lot more money by sending jobs to China, Malaysia, India, and other bacteria festering locations. If you are a lower level mgr or a line worker, good luck. The government does not care for the common people, we have no lobbyists to influence them.
Actually, yes, Americans are better off now than when Gee Dub was in office. But we are not that much better. His policies made quite a mess and Obama may not have a big enough mop. I am not an Obama fan, but 90% of the current economic situation that we are in is a result of what happens when you deregulate important safeguards that were there to protect us from this situation. Deregulation is the hallmark of Republican politics. A Romney presidency would be the final nail in our coffin.
Sabrina, please, do us all a huge favor and run for Governor. Simple, clear thinking and awareness has long since been absent from Augusta. You have it. We need it. RUN !!!!
FIGURES LIE AND LIERS FIGURE
I though only those counted or could be counted were those eligible for unemployment. Once unemployment runs out whether they found a job or are still looking or not, they would no longer be counted as someone looking for a job? That would drive the percentage down even though there are still millions unaccounted for looking for work.