Tuesday, September 17, 2013

Where Did 6 Million Missing Workers Go? | The Exchange - Yahoo Finance

Where Did 6 Million Missing Workers Go? | The Exchange - Yahoo Finance:

"The other reason is a surprising pullback in the portion of Americans who even want to work. The labor-force participation rate is declining for a variety of reasons, such as younger people going to college or graduate school instead of looking for a job, and out-of-work middle-aged people who simply give up looking for a job and become labor-force dropouts. Economists have been expecting the participation rate to inch up as the economy recovers. But it hasn’t."

How serious is this?

Opinions vary, but the New Yorker estimates the unemployment rate at about 11% if not for the dropouts:
"In August, 2008, just before Lehman Brothers blew up, the participation rate was 66.1 per cent. Five years later, it’s still almost three percentage points lower than it was then.
Assuming the participation rate stayed constant over the past five years, ...A bit of grade-school arithmetic provides the answer. In August, 2008, the participation rate was 66.1 per cent. Applying that figure to a working-age population that has grown by about ten million in the past five years, there would be about 162.6 million people in the labor force, rather than the actual figure of 155.5 million. With 144.2 million Americans currently employed, 18.4 million would then be classified as unemployed. (The actual figure is 11.3 million.) And the unemployment rate would be roughly 11.3 per cent...."

In fairness the New Yorker also tries the calculations under different assumptions, but regardless, the "real" unemployment rate is higher than what we see report.  

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