The Economist has a great look today at the US labor market, which it terms as “perplexing” in light of the latest jobs report. While just 36,000 new non-farm jobs were reported, the unemployment rate fell to 9.0% — after being 9.8% just two months ago.
After hitting on the difference in the two BLS surverys — one of employers, the other of households — The Economist turns its attention to an all-important metric: the participation rate, which measures those who are working or looking for work.
The participation rate keeps falling, even during the recovery, with people pursuing more education or dropping out altogether. Currently it’s at just over 64%, from its peak of 67% in 2000. (As Business Insider pointed out using a fascinating chart, the jobless rate would be 13% if the participation rate ticked up to 67%).
From The Economist’s article:
Not only is the population growing more slowly, the share of it in the labour force (that is, either working or looking for work), known as the participation rate, has also fallen. That rate commonly falls during recessions when some of the unemployed give up the search, go back to universities or training colleges or retire early. The decline usually reverses during recovery. Not this time: since the recess
ion ended in mid-2009, the participation rate has kept on sliding (see chart). It has fallen most among the young, many of whom have stayed in education, and least among those over 55.
Most striking has been the drop for men aged 25-54, who have long had the highest participation rates. Some of these men will re-enter the labour market when the economy and job opportunities revive, but many will not. The participation rate of men has been declining for years, apparently because many who lost their high-paid, low-skilled jobs in manufacturing, transport and construction have retired or registered as disabled rather than retraining. Julia Coronado, an economist at BNP Paribas, reckons a wave of early retirements by state- and local-government staff and manufacturing workers may explain the latest downturn. If these men never rejoin the job hunt, it would, paradoxically, help to bring the unemployment rate down faster. That might look like good news; but it is not.
Another important element in this conversation is population shifts. The Economist touches on it, but a fuller discussion can be found in this New Republic article. TNR writes that the working-age population has increased by 2.6 million (from 158.5 to 161.1 million) in the last three years … “but the size of the labor force has not budged.”
After a look at last week’s local area data from BLS, about half of the country’s largest metropolitan areas now (as of December 2010) have fewer labor force participants than they did at the start of the recession three years ago. The metropolitan areas of Houston, Dallas, Miami, Austin, and San Antonio have each seen their labor forces increase by at least 50,000 people, while Detroit, Atlanta, Chicago, and Los Angeles saw their labor forces shrink by at least that much. This reminds us that the state of the jobs recovery is not only precarious nationally, but is shaped by distinct regional economic dynamics, and the opportunities (or lack thereof) on the ground in metropolitan America.