The grinding pace of recovery has hollowed out the workforce. Government data showed that only 63.2 percent of working-age Americans have a job or are looking for one, the lowest proportion since 1978. Nearly 90 million people are now considered out of the labor force, up 1.7 million from August 2012.
“We just don’t see this consistent, strong job market that’s really going to entice people to go back into it,” said Michael Evangelist, policy analyst at the National Employment Law Project. “You don’t want people falling out of the labor force where they’re not able to contribute and not able to find work.”
Carol Petty, 54, is among those hanging in the balance. She lost her job as a paralegal in Nevada last summer and has struggled to find work since. Petty moved to California to be near her family and hoped she would find a better job market. She sends out as many as 10 résumés a week and knows she is unlikely to find another position that pays her old salary of $55,100 a year.
She said others in her position have given up seeking work. The question for Petty — and the broader economy — is how long people like her will be able to hold on.
“I’m just so stubborn,” she said. “I will do anything.”
There are demographic trends underlying the decline in the labor force. For much of the past generation, growing numbers of working women boosted its size, but that effect has leveled off. Meanwhile, the first wave of baby boomers is reaching retirement age, while younger workers are staying in school longer before looking for their first job.
Many economists believe those shifts cannot fully explain the size of the decline. Research released this spring by two Federal Reserve economists showed that states with the largest drops in unemployment also had bigger declines in the labor force, suggesting the slow pace of recovery is the culprit.
Before the recession, the government studied population changes and forecast that the participation rate would dip by 0.3 percentage points from 2007 to 2012, according to the paper. Instead, it fell by 2.5 percentage points.
Amanda Dean has almost reached the end of the line. The 30-year-old North Carolina resident has a master’s degree in social work, but has never found a job in her field. She was laid off from her last job, as an office manager, in January.
Her state unemployment benefits ran out in July, and she isn’t eligible for an extension. She doesn’t qualify for food stamps, either. Dean’s parents have been helping pay her mortgage and other bills.
Dean said she has thought about dropping out of the workforce altogether, perhaps going back to school for a business degree. But she realized she couldn’t afford it.
“I have not given up,” she said. “That’s not an option.”
Economists had hoped that the recovery would pick up steam during the second half of this year. But it’s been the decline in the labor force rather than robust hiring that has pushed the unemployment rate to a deceptively low 7.3 percent.
Bob Funk, chief executive of Express Employment Professionals, a staffing firm, said that many businesses remain reluctant to bring on permanent workers. Typically, about two-thirds of his firm’s temporary employees are hired by the companies at which they are placed. Now only about half are kept, he estimates.
“That’s primarily due to the uncertainty out there,” Funk said, citing new health insurance requirements as well as looming fiscal fights in Washington. “They don’t know how to manage their business as well when they don’t know what their costs are going to be.”
Washington remains a wild card for the economy. Congress must agree on at least a short-term spending plan by October or risk shutting down the federal government. In addition, the nation may not be able to pay all its bills unless lawmakers agree to raise the debt ceiling before a mid-October deadline.
In a remarks Friday while at the Group of 20 summit in Russia, President Obama said he is “determined that the world has confidence in the full faith and credit of the United States.” He also touted gains in manufacturing jobs and new regulations aimed at fortifying the nation’s banks.
“We’ve put more people back to work, but we’ve also cleared away the rubble of crisis and laid the foundation for stronger and more durable economic growth,” he said.
Still, the recovery may not be strong enough to stand on its own. The Federal Reserve has been pumping $85 billion a month into the economy, but will consider reducing that amount when officials convene for their regular meeting this month.
On Friday, Kansas City Fed President Esther L. George called for scaling back the program by $15 billion. In a separate speech, Chicago Fed President Charles L. Evans was more circumspect, but acknowledged the data has been murky.
Fed Chairman Ben S. Bernanke has said that the central bank will begin paring its stimulus this year, and many investors expect it will start this month. But Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, said he believes the August jobs report is evidence that the economy still needs the Fed’s help.
“This is the time to be thinking more about Main Street, less about Wall Street,” he said.