The Shrinking Labor Force
September 8, 2013
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The government announced that the unemployment rate fell in August, down to 7.3 percent from 7.4 percent in July. But there is little reason for cheer. As Business Week explained:
The worrisome part is why the rate fell. The size of the workforce declined by about 300,000 and the participation rate fell to 63.2 percent from 63.4 percent—the lowest since August 1978. The participation rate is the number of people either working or actively searching for work as a share of the working-age population. It rose steadily over the years as more women entered the workforce before falling sharply in the 2007-09 recession, and it hasn’t recovered since.
In other words, the unemployment rate continues to fall only because people continue to lose hope of finding a job. The chart below shows the trend in the U.S. labor force participation rate.
The following chart highlights one reason for our dismal employment record. In contrast to previous recoveries, state and local government spending has been slashed, resulting in an ongoing contraction in state and local employment, with negative consequences for private sector employment as well.
And, it is worth emphasizing, this shrinking labor force participation rate, which represents a clear failure on the part of our economic system to create jobs, is taking place during a period of economic expansion. One can only shudder at what lies ahead for working people when this expansion finally ends in a new recession.