October 16, 2019

Unemployment Is Low, but That’s Only Part of the Story

Unemployment Is Low, but That’s Only Part of the Story

A more accurate statistical picture would emerge of all those who wanted jobs even though only some of them were actively looking. A low participation rate — the current situation — is a serious matter. It undermines the production of goods and services in the United States, and may also signal deeper issues.

“You run into the problem of losing economic output when people drop out of work,” said Richard B. Freeman, a labor economist at Harvard and at the National Bureau of Economic Research. “If you are not in school and not in work or actively searching for a job, you are not involved in society, and you are more likely to engage in antisocial activities.”

With the appropriate focus on both the unemployment rate and the labor force participation rate, Americans would be fully aware that while nearly everyone who has actively sought a job recently has one, an awful lot of people aren’t bothering to look at all. Perhaps a spouse is earning enough, or the wages on offer for available jobs are too low, or the commute to an acceptable job is too long, or child-care is too expensive or the working conditions are too difficult.

The decline in the labor force participation rate stems partly from demographic change: Older people typically don’t participate in the work force to the degree that younger people do, and the American population has been aging. Several economists, including Jason Furman, the former chairman of President Obama’s Council of Economic Advisers, make this point.

But whatever the reason, many people who once yearned for work now no longer openly do so, much less seek paid employment.

Many of the dropouts in recent years have been women. Since April 2000, the participation rate among women has fallen 3.2 percentage points, to 57.1 percent from 60.3 percent. That is the largest decline since women started entering the labor force in large numbers in the 1960s. Men, in contrast, have been dropping out gradually since the 1960s, although the decline accelerated slightly a decade ago.

We don’t entirely know why this has been happening for either gender, but the failure to highlight both the unemployment rate and the labor force participation rate in reporting on the monthly employment figures contributes to a failure to fully recognize and explore a source of discontent in the country.

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