The unemployment rate has been falling steadily for several years as the United States emerges from the Great Recession. In June, the unemployment rate fell to 5.3%, the lowest in seven years. Job growth has also been consistently steady, if a bit sluggish after a first quarter slump. However as the unemployment rate has fallen, so too has the labor participation rate. In June, the workforce participation rate declined to 62.6%, the lowest since October 1977. Do more and more people exiting the workforce reveal that the economic recovery may not be as bright as some hope? Or is it simply the new normal?
Americans have been leaving the labor force since the tech bubble burst in 2000. Before then, the rate had been steadily climbing as women entered the workplace. More than 94 million Americans are neither employed nor looking for work, and 432,000 people left the labor force in June, causing a further slump in participation. The downward trend has been consistent for nearly fifteen years and a sluggish economic recovery has only hastened the decline.
The drop in participation could be caused by certain demographic groups opting out of work. For instance, Americans are now living longer and the Boomers who once made up the majority of the workforce have retired in force in the last years. Only a third of Baby Boomers in the U.S. are still working (Gallup, 1/26/15). On the opposite end of the spectrum, more young Americans have opted to stay in or return to school rather than start their career. Non-working students, mostly under the age of 35, increased from 5.8% in 2006 to 7.1% in 2012 (Bloomberg, 1/19/15). Those continuing their education are predicted to return to the labor force once they've finished school, but for now their education keeps them from being employed. Younger people staying in school longer and a mass exodus of older workers means that the labor participation has dragged since well before the Great Recession and will continue to do so as more Boomers retire.
However, less people working may not just be about generations. The more worrying aspect of decreased participation is the decline of "prime workers" (those between 25 and 54 years of age) dropping out of the workforce. The amount of men in the workforce declined to 69% in June, the lowest since the data started being tracked in 1948 (U.S. News & World Report 7/16/15). Women, who were responsible for the climbing participation rate for several decades, have also left the workforce and their participation has declined to 56.7%, down from the 60% peak in 2000.
Most concerning is that economists do not expect prime workers who have left the labor force to return to it, even if the economic recovery speeds up. Those who have opted out have done so out of discouragement and changing work environments. Despite 5.4 million vacant positions, these workers do not have the skills potential employers are seeking for their open jobs. This becomes a vicious cycle: as workers drop out of the labor force due to lack of skills, being unemployed means they can't get the job skills they need and decreases their employability even further.
The shrinking American workforce is predicted to continue and economists worry that low labor participation will hurt the economy. A decline in productivity could mean depressed development and stagnant GDP growth. The disappearing American worker may mean that the economy will continue to limp along rather than surge ahead.
Readers, why do you think the labor participation rate is falling? Comment and let us know!