The Incredible Shrinking Workforce

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The Incredible Shrinking Workforce

The U.S. economy added 69,000 jobs in May 2012, the weakest growth in a year. The unemployment rate rose to 8.2 percent, the first uptick since June 2011. Revisions from previous months also showed the economy gained 49,000 fewer jobs in March and April than originally thought. Private companies sharply cut back on hiring last month, adding only a meager 82,000 jobs.

Looking back further, over the past 27 months, the average monthly employment gain was less than 140,000, which statistically is barely enough to make any change in the unemployment rate, and yet, during that same 27 months, the rate dropped from 9.8 percent to 8.2 percent.

Clearly, something else is going on. It is — and one question clears it all up: 8.2 percent of what?

The answer, of course, is 8.2 percent of all workers, both employed and unemployed, also called the labor force. The catch is that this total number of workers is a moving target, and recently it’s gotten much smaller. This is because when job seekers quit looking, for whatever reason, they are no longer counted among the unemployed, causing the unemployment number to drop.

To factor in this segment of citizens who are not included in the labor force, the government issues another number called the “Labor Force Participation Rate,” or LFPR. This number is determined by dividing the labor force — those working and those looking for work — by the total number of people in the adult population.

Obviously, when this number is lower, the employment situation is worse because it indicates that people who could otherwise be employed aren’t able to find jobs for which they are qualified. This number, which has been dropping, is a much more accurate, and therefore telling sign about the economy than is the more well-known unemployment rate number.1

In 2001, the LFPR was 67.3 percent. By the time President Obama took office in 2009, that number had dropped to 65.5 percent. According to the federal government, in April 2012, the number had slipped to 58.4 percent. Driving this downward change were 522,000 workers in April alone who left the labor force, presumably because they gave up looking. Heidi Shierholz, an economist at the Economic Policy Institute, a left-leaning think tank, puts the number of workers who have stopped looking at around 4 million, acknowledging they no longer factor into the unemployment rate.

A disturbing comparison reveals that the dropping U.S. LFPR is now approaching those for European countries where socialist market policies have long encouraged significant numbers of adults not to work.

If the unemployment number of 8...

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