Where Have All the Workers Gone?

The March employment report, released last Friday, was a real shocker. After several consecutive months of strong jobs growth, we got only 88,000 net new jobs last month.

The official unemployment rate dropped 0.1 percentage points in March, to 7.6%, but that was almost entirely caused by half a million—half a million!—people leaving the workforce.

The two defining and disturbing numbers of the most recent recession are the long-term unemployed (those out of work more than 27 weeks) and the labor force participation rate, or the percentage of eligible people who are either employed or looking for a job.

Long-term unemployment has been off the charts—it stood at 4.6 million people in March.

But the sharp drop in work force participation may be even more troubling, because these people are dropping off the face of the earth and live in a nether world of debt, cashed-out 401k plans and subsistence government benefits like food stamps and disability insurance.

The chart presented by Chart Man Steven Rattner on “Morning Joe” Monday tells the tale of a sickening decline in workforce participation since it peaked at 67.3% in 2000, continuing to fall even since the Great Recession officially ended.

In March, only 63.3% of eligible workers were either working or looking for a job, the lowest percentage since 1979 and a full four-percentage-point drop since 2000.

Workers have been dropping out of the labor force since 2000, and the pace is picking up. Source: MSNBC/Morning Joe.

Workers have been dropping out of the labor force since 2000, and the pace is picking up. Source: MSNBC/Morning Joe.

What’s behind it?

A study by William Van Zandweghe, senior economist for the Federal Reserve Bank of Kansas City, found that

The recent shifts in the age distribution of the population and in the worker flows in and out of the labor force suggest that trend factors and the cyclical downturn account about evenly for the recent decline in labor force participation.

Translation: half of the decline is due to demographics, while the other half is because of the weak recovery.

The demographic argument is well known, as USA Today wrote:

The massive surge of women into the work force since the 1960s has petered out. Baby Boomers have begun retiring. …Some older workers who can’t find jobs are choosing to retire early or go on disability, turning a temporary decline in labor force participation into a permanent one.

Indeed, the AP reported:

Nearly 8.9 million Americans are receiving disability checks, up 1.3 million from when the recession ended in June 2009.

Disability insurance is becoming a halfway house for people who are apparently too old to be hired but too young to get even early Social Security benefits.  Many may never return to fully participate in the labor force.

The recession exacerbated this trend. The economy lost six million manufacturing jobs from 2000 to 2009 and about a million construction jobs since the housing boom went bust.

If any of these jobs come back, they’re often at much lower wages, discouraging a lot of younger workers from taking them. Workers in their 20s are instead going back to school to develop more marketable skills.

The Kansas City Fed’s Van Zandweghe estimated that the low participation rate is depressing the official unemployment rate by about one full percent, which means that March’s rate would be 8.6-8.7% if so many people hadn’t dropped out of the workforce.

It speaks to the failures of both Republican tax cuts in the mid-2000s and Keynesian spending and money printing in the Obama years. No policy being debated in Washington today has much chance of giving labor force dropouts a real opportunity to get a good job again, and that’s a big, big problem

 

 

 

 

 

 

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