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Millions Of Americans Are Leaving The Workforce. Why?

Filed by KOSU News in Business.
May 2, 2013

Earlier this year, the percentage of Americans who are working or looking for work fell to its lowest level since 1979.

The figure (wonks call it labor force participation rate) rose for decades, as more women entered the workforce. It started falling over a decade ago. And the decline is now being driven by a bunch of different factors — some of which are scary and recessiony, and some of which are not.

One big cause of the decline: America is getting older. The share of the total U.S. population past retirement age is increasing. Even in good economic times, this would tend to drive down the participation rate. And, in fact, that was happening well before the recession.

The decline in the participation rate is also being driven by people at the beginning of their careers — partly because more young people are choosing to go to college rather than get jobs right out of high school. So, if you think it’s a good thing for more Americans to go to college, this is also a not-scary reason the participation rate is falling.

That leaves the biggest share of the labor force: People age 25-54, the prime working years. And this is the scary, recession-y part of the story. The participation rate for this group fell during the recession, and hasn’t come back.

If the participation rate for this group had held steady, there would be an additional 2 million Americans working or looking for work right now.

When the big monthly jobs report comes out Friday morning, these people won’t even be counted among the unemployed, because the unemployment rate includes only those looking for work.

For more on the changes in the participation rate, see this week’s Wonkfeud (heavy on the wonk, light on the feud) between Real Time Economics and Wonkblog. Also useful is this recent Fed paper, which compares projections from before the recession to what is actually happening now. [Copyright 2013 NPR]

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