April’s jobs: Americans aren’t working

By Felix Salmon
May 4, 2012

There’s a lot going on in this month’s jobs report. The headline number of jobs created — 115,000 — is miserable: it’s basically just enough to keep up with population growth. That’s the number the markets look at. The number the politicians look at, however, is the unemployment rate, which ticked down to 8.1%. That’s still high, but it’s not a statistic to beat Obama round the head with.

The big news, however, lies elsewhere, in the fact that a whopping 522,000 people left the labor force joined the “not in labor force” rolls last month. When more than half a million people in one month decide that they’re not even going to bother looking for work any more, there’s no way you can say you’re in a healthy recovery.

Zero Hedge has the two charts which matter. First you have the number of people not in the labor force, which has been climbing steadily through the recession and the recovery, and is now approaching 90 million. The only time it fell was during the first quarter of 2010 — the census-hiring boom. This chart speaks volumes to me: it says that while Capital might not be in a recession any more, Labor still isn’t working.

People Not In Labor Force.jpg

Then there’s the even scarier one, which is the labor force participation rate — now down to 63.6%.
Participation Rate.jpg

This chart is just petrifying. The participation rate started falling after the dot-com bust, leveled off during the credit boom (but never really rose much), and then fell off a cliff when the recession started. You’d think it would have started to bounce back up by now, but no. Instead, we’re now deep into pretty much unprecedented territory. Yes, the participation rate has been this low before — back in 1981. But that was during the decades when women were still properly moving into the labor force.

As Mike Konczal noted this morning, a key indicator of labor recession is still in force: if you’re unemployed, you’re still more likely to drop out of the labor force entirely than you are to find a job. And as Dan Alpert noted, in a country of 314 million people, there are only 115 million full-time workers and 27 million part-time workers. It’s really hard to get a robust recovery when the number of people earning money is so anemic.

For demographic reasons — the retirement of the baby boomers — the labor force participation rate is naturally going to fall over the next decade. But go back just one year, to March 2011, and look at the official CBO projection of the labor force participation rate. The CBO saw a rate of 64.6% in 2012 — a full percentage point higher than we’re at right now. The participation rate wasn’t expected to fall to today’s level of 63.6% until 2017.

Politically speaking, the unemployment rate is still the number that people concentrate on. But increasingly, being unemployed is little more than a halfway house between employment and dropping out of the labor force altogether. Until the labor force participation rate stops falling and starts rising, the so-called recovery will remain a theoretical economic entity and not a real-world reality for hundreds of millions of Americans. We need jobs, and we need them now. Ben Bernanke, and Congress, are you listening?

Update: The labor force actually fell by 342,000, not 522,000. The working-age population grew by 180,000, however, so the number of people not in the labor force went up by 522,000.

64 comments

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@GregHao, it is a highly individual calculation depending on the cost of commuting, the cost of child care, and the hours involved. (If both parents work 50+ hour work-weeks, you end up paying for a lot of household chores that you would normally do yourself.)

Several years back, I quit a $60k job because it wasn’t economic to pay $10k in child care and another $3k in commuting costs, but the alternative there was to self-employ at $30k with a quarter the hours, deductible commuting costs, and no child care bill at all. Toss in a second child, and 8 years of inflation, and $60k is roughly the break-even point where I live.

For those making six figures, it is a lifestyle choice. I continued to teach full time for half a year after my first child was born, but adding child care responsibilities to the 50+ hour work week was a killer. Those who can afford to stay home may choose to do so, even if it does involve a financial hit.

Posted by TFF | Report as abusive

Eli has noticed that many in his age group, (over 60s) who have built up a nest egg are headed for the exits, himself included. Wonder if this has had some effect.

Posted by EliRabett | Report as abusive

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