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Jobs Report: Declining Labor Force Participation

May 6, 2014

In April, the national unemployment rate fell to 6.3 percent. It came, however, with a decline in labor force participation, which is now the level it was during the Carter presidency. While some of the decline is due to baby boomers retiring, declining labor force participation is concerning. 

“… wages remained flat, nearly 10 million unemployed people are looking for jobs, and millions more have become so disenchanted that they have given up on finding work altogether.”  – Editorial, New York Times, May 5, 2014

Labor Force Participation

Labor force participation in April fell to 62.8 percent, down 806,000 people or 0.4 percent from March and tied for the lowest level in 36 years. If the participation rate were the same as when President Obama took office, the unemployment rate would be 10.4 percent.  

Key Labor Rate Is Well Below Previous Levels

Labor force participation rate

Long-Term Unemployment Remains a Problem

In April, the number of long-term unemployed (those out of work for 27 weeks or longer) was 3.5 million Americans or 35 percent of the unemployed. In the 1980s, when our country faced a similar recessionary period, the proportion of long-term unemployed never exceeded 27 percent. 

Federal Reserve Chair Janet Yellen recently raised concerns about the consistent number of Americans working part time for economic reasons — because they cannot find a full-time position or their hours have been cut back. In April, this was 7.5 million people, an increase of 54,000 from March. Additionally, there were 783,000 people in April, an increase of 85,000 from March, categorized as “discouraged workers” — those not currently looking for work because they believe no jobs are available for them. 

Young Workers Hurting

According to a May 1 paper from the Economic Policy Institute, there are nearly one million “missing” young workers who are neither employed nor actively looking because job opportunities remain scarce. “For the next 10-15 years,” the report says, “those in the Class of 2014 will likely earn less than if they had graduated when job opportunities were plentiful.” 

According to the EPI paper, the unemployment rate for young college graduates is currently 8.5 percent, compared to 5.5 percent in 2007. The underemployment rate for this population is 16.8 percent, compared to 9.6 percent in 2007. Those with only a high school education fare worse, with an unemployment rate of 22.9 percent, compared to 15.9 percent in 2007. The under-employment rate for high school graduates is 41.5 percent, compared to 26.8 percent in 2007. 

Concern with Lack of Wage Growth

Federal Reserve Chair Yellen has also expressed concern about the slow pace of wage growth. Employers are not feeling pressure to raise wages to find qualified workers. Average hourly earnings of private-sector workers were unchanged in April from March. Hourly earnings have grown by just 1.9 percent over the past year. These issues will factor into the Federal Reserve’s decisions on tapering its monthly bond purchases and raising short-term interest rates. 

Employment and Unemployment

The unemployment rate was 6.3 percent in April, down 0.4 percent from last month. The Labor Department reported an increase of 288,000 nonfarm jobs over the previous month. Payroll employment for February was revised from 197,000 to 222,000 jobs created and the figure for March revised from 192,000 to 203,000 new jobs.   

The “real” number of unemployed Americans is 19.5 million. These are people who are unemployed (9.8 million), want work but have stopped searching for a job (2.2 million), or are working part time because they cannot find full-time employment (7.5 million). The “real” unemployment or U-6 rate is 12.3 percent, down 0.4 percent from March. This is the total percentage of unemployed and underemployed workers.