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Labor Force Participation Hits 35-Year Low

November 13, 2013

Employment rose by 204,000 jobs in October and the jobless rate increased 0.1 points to 7.3 percent. While job growth for October beat expectations, there remain 11.3 million Americans unemployed and hundreds of thousands dropping out of the labor force altogether. 

Labor Force Participation Lowest Level Since 1978

In October, labor force participation fell by 720,000 people, to a rate of 62.8 percent -- a decrease of 0.4 percent from last month and the lowest rate in more than 35 years. Labor force participation measures those who are working or actively looking for employment. If the labor force participation rate were the same as when President Obama took office, the unemployment rate would be an alarming 11.3 percent.

Labor force participation rate continues to fall

The share of American adults with jobs in October was 58.3 percent – 0.3 percent lower than last month. This is more than five percentage points below its pre-recession peak.

“Real” Unemployment

The “real” number of unemployed Americans is 21.7 million. These are people who are unemployed (11.3 million), want work but have stopped searching for a job (2.3 million), or are working part time because they can’t find full time employment (8.1 million). This includes 448,000 furloughed federal employees who reported being temporarily laid off. The “real” unemployment, or U-6, rate is 13.8 percent for October, an increase of 0.2 percentage points. This is the total percentage of unemployed and underemployed workers.

Hiring Remains a Concern

President Obama promised a “natural unemployment” rate of five percent by now, but job growth remains sluggish. In 2012, the economy added an average of 262,000 jobs a month. In 2013, the economy has added an average of 186,000 jobs per month.

In one survey of small business owners, optimism fell in October from 93.9 to 91.6 due to the recent federal funding stalemate and the failed launch of the Obamacare website. As a result, 68 percent of small business owners said that now is a bad time to expand. According to an October Gallup survey, only 52 percent of Americans believe there is “plenty of opportunity” to get ahead in America today, down from 57 percent in 2011 and 81 percent in 1998.

The Joint Economic Committee has also raised concerns about the number of Americans working part time for economic reasons – those whose hours have been cut back or who are unable to find a full-time position. This figure has averaged eight million throughout 2013. In addition, there were 815,000 people in October categorized as discouraged workers, roughly the same as a year ago. Discouraged workers are those who are not currently looking for work because they believe no jobs are available for them. 

While the Federal Reserve has said improved jobs numbers are central to its decision to begin to taper its $85 billion monthly bond-buying, most analysts agree the recent jobs report is unlikely to affect its decision. The Fed Board of Governors is scheduled to meet December 17-18. 

Uneven Recovery Seen in Hours and Wages

Despite recent job gains, according to the Wall Street Journal, “many Americans have yet to experience much that could be described as a recovery.” This has been especially true for the young, the less educated, and the unemployed. In October, 4.1 million Americans had been searching for work for more than 27 weeks. 

Last month, the average hourly private nonfarm payroll rose by two cents to $24.10. As noted in the Wall Street Journal, wage growth, which usually accelerates after recessions, has barely outpaced inflation. Year-over-year hourly earnings have risen 52 cents or 2.2 percent.