Workforce Dropout Number Is Worrisome for Labor Market
disappointing employment report underscores just how tough it still is to find a job. But perhaps even more worrisome is how few people are even trying.
The share of the population that's either working or looking for work, a metric known as the participation rate, fell to 63.3% in March, its lowest level since 1979. Nearly half a million Americans dropped out of the labor force in March, the biggest one-month decline since December 2009.
The participation rate doesn't get as much attention as the better-known unemployment rate, but many economists consider it a better gauge of the labor market's long-term health. The jobless rate only counts people who are actively looking for work; it ignores the millions of Americans who have given up looking entirely.
Plenty of people are also leaving the labor force for more benign reasons. Six of every 10 workers who drop out each month had jobs the month before—in other words, they are retiring, going back to school or quitting work to raise children. The aging of the baby-boom generation means the participation rate would have fallen in recent years even if the last recession had never happened.
But demographics alone can't explain the downward trend. March's labor force decline was concentrated not among retirement-age baby boomers but among those under age 25, who accounted for nearly half of all drop-outs. The participation rate among those under 25 has fallen below 55%, from just under 60% when the recession began. That reflects to some degree the long-run increase in college attendance, but the big one-month drop also suggests young people are struggling to find work in the still-shaky economy.
Among those in the middle of their working lives, the downward trend is milder but still unmistakable. The participation rate for so-called prime-age workers—those between 25 and 54—was 81.1% in March, the lowest level since 1984. There is no benign explanation for that decline: The number of prime-age workers counted as "unemployed" has fallen by 731,000 in the past year, but just 166,000 of those workers found jobs; the rest simply gave up looking.
The shrinking labor force has long-term implications for the U.S. economy. Economic research has shown that the longer people stay out of work, the harder it is for them to find jobs—thus many of the recent drop-outs will likely never return to the labor market, even as millions of baby boomers are poised to retire. Barring a rapid economic acceleration that leads to a hiring surge, that will leave a smaller share of the population supporting the economy.
At the same time, many of those who do return to work will be forced to take jobs that pay far less than the ones they held before the recession, while many young people have missed out on early-stage career opportunities that are critical to earnings later in life. For them, the scars of the recession are likely to last long after hiring eventually rebounds.
A version of this article appeared April 6, 2013, on page A2 in the U.S. edition of The Wall Street Journal, with the headline: Worrisome Indicator: Workforce Dropouts.