[caption id=”attachment_144240″ align=”aligncenter” width=”4285″] In this photo taken Wednesday, June 10, 2015, job seekers attend a job fair in Sunrise, Fla. The Labor Department reports on the number of people who applied for unemployment benefits the week ending Aug. 1 on Thursday, Aug. 6, 2015. (AP Photo/Alan Diaz)
[/caption]
The U.S. unemployment rate is low, but it’s a weak gauge of the economic strength of the nation.
The unemployment rate remained unchanged at 5.3 percent in July, but 93.8 million Americans remain out of the labor force, with a 38-year low labor force participation rate of 62.6 percent.
The labor force participation rate measures the number of people either working or searching for work within the last four weeks out of the total population. Retired persons and those without a job but who have stopped searching for one, for example, are included in the labor force participation rate, but not in the unemployment rate.
Since the 2008 economic crash, the American economy has been described as a jobless recovery. Economic activity grows, but the unemployment rate remains high.
Research from the St. Louis Federal Reserve bank gives a few explanations for causes. A labor market mismatch of skills and demand; polarization within the economy into high-skill, high-wage jobs and low-skill, low-wage jobs; automation and outsourcing; job losses during a recession that become permanent. A combination of those causes can lead to a restructuring of the economy with long periods of unemployment, lower lifetime earnings for young workers, and social consequences such as higher crime rates.
The unemployment rate has fallen from the October 2009 high of 10 percent, and the last time the American economy had unemployment under 5.3 percent was April of 2008, which doesn’t look too bad. However, the labor force participation rate in April 2008 was 65.9 percent, and has been declining for more than a decade.
The American workforce is aging, more workers are retiring, and growth in the labor force has slowed. During the next decade, the Bureau of Labor Statistics expects “an aging labor force that is growing slowly, a declining overall labor force participation rate, and more diversity in the racial and ethnic composition of the labor force.”
The recession hit young workers hard. The labor force participation rate declined sharply between 2008 and 2010. The average participation rate for youths 16 to 24 years old in 2008 was 58.9 percent, but by 2010 it dropped to 54.8 percent. In 2014, it stood at 55 percent.
Young workers opt for more education when a job isn’t available, but an increase in college graduates isn’t always a benefit, as students might prefer working, or their education might not add value to their preferred career. The marginal value of another year of education instead of a year of work starts to decline at a certain point.
Older workers have delayed retirement as well. The labor force participation rate for workers 65 years and older was 16.8 percent in 2008, but has climbed since then, and was 18.6 percent in 2014. The increase in retirement-age workers is a sign of a weaker economy, not a strong one that proves irresistible to retirees.
A lower unemployment rate is good news, but the labor force participation rate adds nuance to the economic picture.
A healthy recovery will be indicated by higher participation rates and more older workers leaving the workforce, but structural changes in the American economy will bring slower workforce growth with an aging populace.
The new normal, in other words, will be more diverse, but less robust, and uncontrollable by public policy.
