Unemployment shrinks labor force
Posted by admin | Posted in The Capitol | Posted on 19-01-2011
Tags: Force, Labor, shrinks, unemployment
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The Economic Policy Institute looks at trends in employment during and after the recent recession and documents a staggering fact, that the U.S. labor force has actually shrunk in the last few years despite the addition of millions of new workers through normal population growth.
Though the unemployment rate dropped to 9.4%, around half of the improvement was due to 260,000 people dropping out of the labor force, leaving the labor force participation rate at 64.3%, a stunning new low for the recession. Incredibly, the U.S. labor force is now smaller than it was before the recession started, though it should have grown by over 4 million workers to keep up with working-age population growth over this period…
Incredibly, the labor force is now smaller than it was before the recession started, so the pool of “missing workers,” i.e., workers who dropped out of (or didn’t enter) the labor force during the downturn, remains large. We can estimate its size in the following way. The labor force should have increased by around 4.2 million workers from December 2007 to December 2010 given working-age population growth over this period, but instead it has fallen by 246,000. This means that the pool of missing workers now numbers around 4.4 million. If just half of these workers were currently in the labor force and were unemployed, the unemployment rate would be 10.7% instead of 9.4%. None of these workers is reflected in the official unemployment count, but their entry or re-entry into the labor force will contribute to keeping the unemployment rate high.
The analysis concludes:
While the labor market is now adding jobs, it remains 7.2 million payroll jobs below where it was at the start of the recession three years ago. And even this number understates the size of the gap in the labor market by failing to take into account the fact that simply keeping up with the growth in the working-age population would require the addition of another 3.7 million jobs in those three years. This means the labor market is now nearly 11 million jobs below the level needed to restore the pre-recession unemployment rate (5.0% in December 2007). So, despite the job growth of 2010, we remain near the bottom of a very large hole. To achieve the pre-recession unemployment rate in five years, the labor market would have to add nearly 300,000 jobs every month for the entire period. December’s modest improvement offered 103,000 pieces of good news, but little collective cheer.
All of this means that the problem of long-term unemployment at record levels is not going to go away anytime soon.