Surprise: America’s discouraged workers are finding jobs — or so it seems. Unanticipated by many economists, this is good news for the country (and, assuming it continues, probably for Democrats this fall).
Ever since the Great Recession, economists have worried that the severity and length of the slump would forever consign many workers to the sidelines. Their prolonged disconnect from jobs would corrode their morale, contacts and job skills.
For years, the numbers seemed to confirm these fears. The labor force participation rate — the share of Americans 16 and older with a job or looking for one — steadily declined. From January 2008 to September 2015, it dropped from 66.2 percent to 62.4 percent. Although this change may seem small, it represents a loss of about 6 million workers.
True, it’s unclear how much resulted from the recession. A study by the White House Council of Economic Advisers estimated that about half the decline reflected the retirement of baby boomers. Other causes include longstanding trends: young people staying in school longer; low-income workers taking disability insurance. Still, the recession seemed a major contributor. Discouraged workers (generally, those who had looked for work in the past year and gave up) multiplied.
“The consensus of academic research,” says economist Robert Gordon of Northwestern University, “was that these dropouts had departed permanently from the labor force.” But the scholarly fatalism is now challenged. “It seems that the economy has succeeded in getting some of these discouraged workers back into the labor force,” he says.
The latest numbers certainly suggest this. Since last fall, the labor force participation rate has steadily risen. In the six months ending in February, the participation rate had climbed 0.5 percentage points to 62.9 percent. Though this may (again) seem underwhelming, it equals about 800,000 jobs and is a large change for so short a period.
A robust job market is improving psychology. In February, employers created 242,000 new jobs, and the unemployment rate stayed at a low 4.9 percent for a second consecutive month. Job creation is strong enough to persuade discouraged workers to renew their employment search, says economist Josh Bivens of the Economic Policy Institute, a left-leaning think tank and advocacy group.
EPI thinks the participation rate will rebound to about 64 percent, a gain of roughly 2 million workers. The extra workers, he says, will tend to hold down wage gains; lower inflation in turn might prompt the Federal Reserve to delay raising interest rates.
Gordon thinks the participation rate “could increase modestly for another year or two and give the current economic expansion a [longer] duration.” There will be more workers with more cash. But he warns that many dropouts will never return to the job market. Some will qualify for Social Security disability payments, and others “live in depressed areas with few job opportunities.”
Are there caveats? Naturally. Bivens recalls that, since the recession, there have been instances when the participation rate increased for a few months and then relapsed into decline; but he admits that this episode looks more sustainable than its predecessors. It’s also possible that job growth is a lagging indicator — the last to recognize a weakening economy.
Finally, the numbers could be technically flawed, with revisions reducing the bounce in participation. The government conducts two monthly job surveys. The data on labor force participation comes from the so-called “household” survey of 60,000 homes, which is arguably less reliable than the “payroll” survey of 146,000 employers. It’s conceivable that the uptick in labor force participation will turn out to be a statistical fluke. But, for now, the improvement seems real.
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