Unemployment Is Falling For All The Wrong Reasons

[Purveyor]

Before we go high-fiving each other about unemployment falling, we should consider the reasons for it falling, which aren't quite so high-five-worthy.

Unemployment fell to 6.7 percent in December from 7 percent in November, the Bureau of Labor Statistics reported on Friday. Unemployment has plunged from 7.5 percent in June and is way down from a high of 9.9 percent in 2010. All of which is good news.

But: One reason for the big drop in unemployment in December was that many, many people dropped out of the labor force -- 347,000, to be exact. They stopped looking for work, which made them no longer "unemployed" in the eyes of the Bureau of Labor Statistics.

This is the latest episode in what has been a fairly dramatic flight from the labor force since the Great Recession. The "labor-force participation rate," the percentage of working-age people who either have a job or want one, has tumbled to just 62.8 percent, the lowest since 1978. (Story continues below chart.)



more...

http://www.huffingtonpost.com/2014/01/10/unemployment-labor-force_n_4575024.html

[Squinch]

1. I may be totally wrong about this but:

that downward trajectory is not related to the recession, because it begins in 06 or 07. There is an exaggeration of the downward trajectory in 2008, but the downturn had already begun a number of years before.

Isn't it possible that the steep run-up from about '72 to about '00 is a demographic anomaly representing the baby boom in the workforce, and this downturn is the aging of the baby boom, creating a population that has a high percentage of retired workers?

I'd be interested in seeing how that line acted before the baby boom. If it was pretty stable and then we see this baby boom spike, this downturn could just be a natural return to the norm.

[El_Johns]

2. It falls from a peak starting in the recessionary climate of 9/11, levels out in the "recovery"

from that recession, & falls again in '08. No mystery.

As the line represents participation in the workforce, the runup starting in the 70s = more women entering the workforce, which drives the participation rate (% of the possible workforce employed) up higher than what it was when about half of women didn't work.

A big generation, a smaller generation, is immaterial. The line is about the percent of working-age people who are actually working.

[Squinch]

3. The line is more accurately described as the percentage of people aged 16 to 64 who are working.

So there is a generational component. Many people younger than 64 years are already retired, and if the older cohort is particularly large, this will represent a larger percentage of the whole.

[JaneyVee]

4. Not completely. Some economists believe it is due to massive baby boomer retirement.

Surprisingly, there is no metric to tell the difference between those who have retired and those in the stopped looking for work category. Btw, no one stops looking for work unless they're retired.

[Fumesucker]

5. Sure people stop looking for work

They often end up being part of the "grey market" or "underground" economy, everything from drug dealers to salvaging scrap metal to begging to thievery, buying and selling at flea markets, yard sale, Craigslist and Ebay and about a million other ways of supporting yourself without an actual formal job.

Eventually, being rejected dozens, hundreds and even thousands of times will wear down the most optimistic soul and non trivial percentage of the population will just give up and go with the flow.