Where do people go when they drop out of the labor force?

at 12:17 PM ET, 04/08/2012

Where’d all the workers go? (Bob Leverone/AP)
In March, the unemployment rate dropped from 8.3 percent from 8.2 percent. But that wasn’t because the economy added an enormous number of jobs.

Rather, as Sarah Kliff pointed out, it was largely due to the fact that 164,000 fewer people were actively looking for work — and they don’t count in the unemployment tallies. That raises the perennial question: Where did all these people go?

The Atlantic’s Matthew O’Brien passes along some handy survey data from Barclays that sheds a little light on this mystery. About 35 percent of the people who have dropped out of the labor force since the recession began in 2007 do want a job, but they’ve become too discouraged to fire off resumes. That’s not good. The other 65 percent are people who have left the labor force and don’t want a job. Some of them are young and perhaps decided to go back to school. But the biggest chunk, by far, seems to be composed of Baby Boomers who have decided to retire early.

There are other possible factors at play, too. The Congressional Budget Office has noted (pdf) “a declining tendency for students to work while they are enrolled at school.” (It’s unclear if this is one reason why student loan debt loads have been soaring.) And Daniel Hartley, a staff economist at the Federal Reserve Bank of Cleveland, has noted that eligibility requirements for disability benefits have loosened and about 350,000 new workers were added to the rolls each year between 2007 and 2010. See this old post for more theories.

In any case, that’s a rather broad-brush look at what’s been happening since the 2007 recession began. But what’s been happening more recently? O’Brien offers up another graph showing that the number of people who are out of the labor force and say they’d like a job has been shrinking steadily and is now at its lowest point since mid-2010. The number of “discouraged workers” appears to be shrinking.

Even if most people who are leaving the workforce don’t want a job, that’s not always a good thing — this category might include, for instance, a 65-year-old worker who was hoping to rebuild his torched 401(k) but has now been forced to retire before he’s truly ready. Still, this is a rough picture of what’s happening. And, as the CBO report notes, we can expect the labor force to keep shrinking in the years ahead, as America ages, even if we get a full and healthy economic recovery.

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