The Curious Case of America's Shrinking Labor Force

December's awful jobs numbers from the Department of Labor were not the signal of an economic turning point that some economy watchers were hoping for. 

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December's awful jobs numbers from the Department of Labor were not the signal of an economic turning point that some economy watchers were hoping for. But on second thought, it's almost of silly that anyone had high hopes for December in the first place given one unfortunate trend that has been developing for some time. The "best" news on the report's surface — a drop in the unemployment rate to 6.7 percent, the lowest number in over five years — is mostly due to one of the most persistent bad trends of the monthly report: the decades-low rate of labor force participation, now at 62.8 percent.

That number, the lowest figure since 1978, tracks the rate of Americans who are actually participating in the work force, either as an active worker or a job seeker. It doesn't include Americans who are retired, in school, disabled, or who have simply given up looking for jobs. Put more simply, the official unemployment rate only counts people who wants jobs and can't get them. That means Americans who leave the labor force can cause unemployment to drop, even if the economy isn't adding very many jobs. Here's what that rate has looked like over the past few decades: 

Source: Bureau of Labor Statistics

Of course, like the unemployment rate itself (and most economic data points), it's not always so cut and dried. For example, the participation rate should be going down naturally as baby boomers retire and senior citizens live longer, which is not a reflection of the overall job market. But it probably should not be going down as quickly as you're seeing here.

Some conservatives would like to promote one easy answer to the low labor force participation numbers: it's Obummer's America. People are discouraged about that nation's future, so they stop working. And while it's true that the rate has dropped during Barack Obama's presidency, that's not really a satisfactory explanation for its cause. It doesn't even accurately outline the timeline of the drop. A look at the broader trend here indicates that labor participation started dropping before Obama took office. As the Brookings Institute showed back in 2006, after a peak in early 2000, labor force participation rates dropped more or less steadily through the first half of the last decade. It leveled out a bit before the start of Obama's first term, and then started dropping again as the recession hit in 2008. As it turns out, there isn't a clear, convenient answer to why this number is dropping. But there are a number of factors to consider. 

Demographics explain part of the drop in labor force participation — as America ages, more and more workers will retire — but not all of it. In fact, the Labor Department noted days ago that the American workforce is also skewing older, as the rates of younger Americans participating in the labor force continues to drop:

"Declining labor force participation rates of young people are pushing down the overall participation rate," the Labor Department explains, in part because of an increase in younger Americans going back to school (or never leaving it.) That back-to-school rush, many have noted, its itself a symptom of the poor economy. Some Americans are simply putting off entering into the job market as long as they can, and school is a great way to do that.

Still others have suggested that labor force drop-outs — people who have just given up on finding work — are driving the sharper than expected drop in labor force participation rates over the years. That theory would feed into what is arguably the biggest concern for the entire American economy, the long-term unemployed. Almost 4 million people (37 percent of all the unemployed) have been jobless for 27 weeks or more. That number has remained steady throughout the entire economic crisis, and shows little sign of improving.

Making matters worse, emergency unemployment benefits for 1.3 million Americans expired at the end of 2013. (That had nothing to do with today's low numbers. We won't see that effect until January's jobs report comes out next month.) Since you have to look for work to collect benefits, the loss of unemployment checks will discourage workers even further, lowering the participation rate and, in turn, the unemployment rate — without anyone finding a jobs.

No one seems to know for sure what portion of labor force drop-outs are accounted for by any single one of these reasons, meaning that the answer (and solution) here is contested. And as with most debates, your political leanings probably have a lot do with which side you come down on. The Washington Post also suggests another proposed cause in the labor participation drop: an increase in the percentage of Americans on disability. But those numbers seem way too small to account for the bulk of the overall drop. Bloomberg noted that some economists think retirement and disability drop-outs will explain a good portion of the downward trend, while others strongly disagree. 

In any case, the continued decline of the labor force participation rate means that over 90 million Americans aren't even considered when figuring the official unemployment rate. And while some of those Americans have willingly dropped out of the job market, many others have not. They would gladly go back to work, if only there were jobs to be had. It should be clear by now that this relatively under-discussed statistic is a big problem for optimistic narratives about the economic recovery. 

This post has been updated for clarity. 

This article is from the archive of our partner The Wire.