Low unemployment is not drawing discouraged workers back into the job hunt, according to a new study from the Federal Reserve Bank of Kansas City that undercuts one of the positive narratives about the labor market.
While the labor force participation rate has been rising, the research note from economists Didem Tuzemen and Jonathan Willis concluded that increase is attributable to fewer people leaving the workforce and older workers delaying retirement, not because people who gave up on work during the recession are coming back.
“While a growing labor force would seem to suggest a surge of new and previously discouraged workers entering the labor force, entries into the labor force actually declined in the past year,” they wrote.
Their conclusion runs counter to the one reached by Fed chairwoman Janet Yellen, who said at a press conference in September that it was “good news” that the labor market appears to be spurring discouraged workers to come back to the job hunt. Yellen cited that dynamic as a reason to keep already ultra-low interest rates lower for longer and giving the economy “room to run” with loose monetary policy.
It is true that the labor force swelled by 3 million people in the year through September, reversing a trend of declining workforce participation since the financial crisis. But that increase doesn’t reflect a mass movement of workers who gave up during the recession returning to the labor force.
In fact, labor force entries declined by 3 percent over the past year, according to the researchers. But labor force exits have declined by even more, by 4 percent. Because millions of people cycle in and out of the workforce, that one percentage point difference adds up.
Exits have declined the most for older workers, suggesting that more people are delaying retirement.
Only among high-skilled occupations have entries actually increased and then only slightly.
Nevertheless, there are still signs that many people who got laid off in the wake of the financial crisis never recovered. For example, the number of long-term unemployed workers, a category that is included in the labor force, is still nearly 2 million, almost twice as high as it was before the housing bubble collapse.
