Work Force Participation Down Along With Unemployment


The latest jobs report is out for November 2016 and the media is in a frenzy over the fact that the unemployment rate has fallen to a nine year low at 4.6%. However, as anyone who has a passing familiarity with the voodoo science of statistics will tell you, numbers can be made to dance to any tune you wish and, contrary to popular opinion, they often lie. And while a 4.6% unemployment rate seems at face value to be great news for the economy, it is unwise to take anything from the government at face value and that holds doubly true for statistics.

When you dig a little deeper into the actual numbers, though, a much more complex and much less vehemently optimistic picture of the US labor market emerges. For instance, the work for participation rate which gauges the overall percentage of the population that is actively engaged in the work force either through employment, the search for employment, or the application for unemployment benefits fell yet again to 62.7%.

While the media is quick to focus on the drop in unemployment levels and the 178,000 non-farm jobs created, they are much less likely to point out that nearly half a million (446,000) people simply left the work force altogether from October to November.

This drop in the work force participation rate is far from a new trend. When you look at a chart of the work force participation rate from 1990-2016, a very clear and very unpleasant trend emerges. Starting around the year 2000, the work force participation rate began to decline. Much of that slowly dropping trend line can be attributed to changing demographics in the work force such as an increase in the number of baby boomers filing for retirement as that generation begins to transition out of the active employment pool. However, starting in 2008, this general slow descent began to pick up pace into an all-out freefall. And, as the graph clearly shows, there has been little to no rebound for the work force since the beginning of the “Great Recession” (aka Great Depression 2.0).

Most pundits and commentators in the media tend to focus on short term numbers such as the weekly jobless numbers or the monthly employment reports when discussing the condition of the US labor market. It’s much easier to paint an optimistic picture of the conditions in the job market when you only look at the past 30, 60, or 90 days worth of data. The longer trends, however, like the one mentioned above for work force participation are a lot more difficult to manipulate and explain away.

The release of this most recent jobs report and the relatively stable numbers it shows (discounting work force participation, of course) have now turned the focus to the FED meeting later this month. The rumors and reports that have been swirling for a while now indicated that unless there was some earth-shaking movement in the employment and labor market, the FED could reasonably be expected to raise interest rates at their meeting in December.

Investors and market-watchers should pay very close attention to this up-coming FED meeting and any decisions about rates that my come out of it as the last time the FED increased interest rates the stock market suffered several days of triple digit swings. And while reading the most recent jobs report it’s important to remember that while unemployment rates may have fallen, that is far from the whole picture.

Unless the long-term trend of decreasing work force participation can be corrected, the US labor market is in for more troubled times ahead, regardless of what the monthly unemployment rates may say.

Mr. McAliley grew up in a small farming community in central North Carolina. After completing a degree in Laser Optics and Optical Physics, he studied Creative Writing and Philosophy at the University of North Carolina at Wilmington. Mr. McAliley has written for numerous websites and has authored several books, including an ongoing dystopian series about the aftermath of a massive EMP attack. Mr. McAliley now lives in Charlotte with his wife, three children, and three dogs.

Latest from Economics

Thanks for visiting our site! Stay in touch with us by subscribing to our newsletter. You will receive all of our latest updates, articles, endorsements, interviews, and videos direct to your inbox.