Are gray clouds hovering over the June employment report?

This morning the Bureau of Labor Statistics released the employment report for June and by all measures it appears to be that the numbers were great news!

To further clarify that statement, however,it was a great report with the exception of one glaring mostly out-of-the-news statistic called the labor force participation rate. The labor force participation rate is the percentage of working-age people within an economy who are either employed or unemployed and looking for work, leaving out those who are discouraged and have given up the search.

The actual employment report numbers released this morning showed that 288,000 non-farm payroll jobs were added and the unemployment rate slipped to 6.1%.

Both numbers were well above economist forecasts that were calling for 215,000 non-farm payroll jobs and the unemployment rate to hold steady at 6.3%.   

But again, what about a labor force participation rate that’s hovering at a 30-years low of 62.8%?

Is this a problem that’s being overshadowed by the good headline numbers being trumpeted by the White House and the media? And is it so low due to a structural issue or is it based on a demographic shift in the United States or is it a combination of many factors?

Here is an opinion from The Numbers column at the Wall Street Journal:

Some 2.15 million people moved from unemployment to employment last month, but an even larger number of unemployed — 2.35 million — dropped out of the labor force. In all but two months since December 2008, more unemployed have dropped out than found jobs. That has brought the share of people working or looking for work — known as the labor force participation rate — to 62.8%, matching a 30-year low.

And that’s at the heart of why economists have been wrong about the unemployment rate lately. They keep expecting people who have become discouraged during the recession and slow recovery to start looking for work again. When someone starts looking for work after having given up, they are counted as unemployed, and that can lead the unemployment rate to increase. But that hasn’t happened. In fact, the number of unemployed who were re-entering the labor market actually fell in June.

To be sure, it’s unclear how much of a problem a low labor force participation rate is. Not all of it is due to the unemployed giving up. There are demographics factors, such as more young people enrolled in college and a retiring Baby Boom generation, playing a role. It also is possible that people who previously gave up looking for work and dropped out are moving right into employment without a spell of searching that would make them count as unemployed.

But there is evidence that the job market isn’t improving for the long-term unemployed. And if people who have been unemployed for long stretches have completely given up and aren’t seeing their prospects improve, the problem will get increasingly difficult to solve. (Source) 

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