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Friday, May 2, 2014

Are the Unemployed Dropping Out of the Labor Force in Great Despair?

For Heaven's Sake!

Whenever a decrease in the unemployment rate is accompanied by a drop in the number of people in the labor force (that is, the number of people either employed or actively looking for work), the "pundits" and others will go nuts claiming that all of these unemployed people are so miserable, so discouraged, that they "gave up" looking for work. 

In the April 2014 numbers, just released this morning, the unemployment rate dropped by 0.4% of a point, and the number of people unemployed dropped by 733,000. But the number of people in the labor force dropped by 806,000 while the number of people employed dropped by 73,000. (The number of people employed full-time, however, rose by 412,000.) So... what does this mean? Why did people leave the labor force?

I haven't looked through all of the data yet, but it's very premature to claim that people are "so miserable", so discouraged, that they are not even BOTHERING to look for work. We have to remember that, in good times and bad, millions of people are hired, millions of people quit their jobs and stop working, millions of people stop looking for work, and millions of people START looking for work. People don't necessarily leave the labor force because they are discouraged and miserable; they often leave the labor force to retire, to return to school, to stay home with children. 

Until we've had a chance to see exactly which groups of people, people representing which age or educational groups, left or joined the labor force; until I look at the flows data to determine if the people who are leaving the labor force were previously employed or unemployed or new to the labor force, claiming that people are "giving up" their job searches, as many short-sighted writers are proclaiming this morning, is just plain folly.

Please remember also that there are employment "flows" data that show us that, over the past couple of years, more people who were employed are leaving the labor force vs. people who were unemployed. The decrease in the labor force participation rate is generally being caused by people leaving employment.  We can think "retirement".  We can also think of people going to school.

I did look at the table on 16-24 year olds put out monthly by the BLS, and I compared it to the report from last month: 

About 230,000 MORE young people are in school in April vs. March, but the number of these students who are in the labor force (working or looking) is just about the same. So that's about a third of the "labor force shrinkage".The rest of the "labor force shrinkage" is all in age groups under 40, not among older people who might be retiring.

But as I said, we shouldn't jump to any conclusions about the drop in the number of people in the labor force.. and, above all, we shouldn't conclude that people are "dropping out" of the labor force in deep despair. Absolutely no evidence of that.

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