Labor force participation rate lowest in 30 years, despite lower unemployment

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Betsi Fores The Daily Caller News Foundation
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The April jobs report shows that the unemployment rate fell to 8.1 percent, nearing the 8 percent threshold that Obama administration promised with his $750 billion stimulus bill.

But the news isn’t all good. While employers only added 115,000 new jobs in April, showing signs of potential economic slowdown, the drop in the labor force participation rate appears more troubling.

The Bureau of Labor Statistics reports that the unemployment rate is the lowest its been since 2009, though the labor force participation rate dropped to the lowest point since 1981, at 64.3 percent. This brings the number of persons not in the labor market to an all time high of 88.4 million, according to Federal Reserve of St. Louis.

The Federal Reserve of St. Louis’s research shows the civilian employment to population ratio at 58.4 percent in April, the lowest in 30 years. The ratio fell dramatically in 2009, around the same time that President Barack Obama’s administration aimed to keep unemployment below eight percent.

CNBC contributor Rick Santelli called the numbers game “ostrich economics” last Friday, implying that the numbers do not tell the full story. He says that 41.3 percent of the unemployed have been so for more than 39 weeks. Santelli also cites Peter Morici, and says, “full four-fifths of the reduction in the unemployment is due to the drop in the labor force participation rate.”

“For 59 out of the last 60 weeks, the weekly jobless numbers have been revised, after the fact, always in the same direction: higher. That’s unheard of,” writes Elizabeth MacDonald Fox Business columnist. “If the adult labor force participation rate stayed the same today as it was when the Great Recession ended in June 2009, at 67.5 percent, the unemployment rate would be 10.9 percent.”

Economists say that employment must expand by 100,000 to 150,000 jobs a month to accommodate population growth.

Morici says the U.S. economy “must add 13 million jobs over the next three years — 362,000 each month — to bring unemployment down to 6 percent. GDP would have to increase at a 4 percent to 5 percent pace,” according to Fox Business.

James Pethokoukis of the American Enterprise Institute suggested in a blog post that the labor market might not regain steam until 2019, or even later. Pethokoukis looks at the employment to population ratio, which has remained fairly stagnant, up to 75.8 in April. “With the pre-crisis average close to 80,” he wrote,“the current pace of improvement would equate to the achievement of a full employment level sometime between 2016 and 2019.”

His numbers use the population ages of 25-54, to account for labor force dropouts and demographic shifts.

One reason for the decrease in some labor market participation rates is the huge population of baby boomers that are retiring, some 10,000 each day, according to the Pew Research Center. But there are other ways to slice the numbers that tell an equally as grim story.

MacDonald also cites a broader unemployment trend. “Since President Obama took office, America has lost a net 740,000 jobs. But during the first 30 months of President Ronald Reagan’s economic recovery, which started in December 1982, total U.S. employment increased by 8.9 million jobs.”

The lower unemployment numbers do, however, play favorably for Obama. If the reported unemployment figures reach 8 percent, or even lower, it will seem that the nearly one trillion dollar stimulus package was a success and that he is finally delivering on the promise of 2009.

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