JOBS, EMPLOYEES, AND DISHEARTENED WORKERS

July 8, 2015. Why was there a 223,000 increase in the number of jobs reported in June when there was no increase in the number of persons employed? Is there more to the story about the falling U.S. labor force participation rate than the exit from the labor force of “alarmingly” large numbers of disheartened workers?
 

The answer to the first question is simple enough. The employer survey focuses on a count of the number of jobs. The household survey pays attention to the number of persons employed. Different survey methods make for different estimates. Even so, the two numbers can be reconciled for the most part by the May-June increase of 173,000 in the number of multiple jobholders: employed persons holding more than one job.
 

The answer to the second question is not quite so simple. The Bureau of Labor Statistics has been collecting data on participation since 1948.  The rate hovered around 58-59 percent every month until it hit 60 percent in June 1969 and remained above that level every month thereafter. It peaked at 67.3 percent in the early months of 2000 and has been sliding downward ever since. Data for June 2015 put the rate at 62.6 percent.
 

There are three sources of change in labor force participation. Persons who one month were employed and transitioned into nonparticipation the following month. Similarly those who were unemployed who dropped out of the labor force. And persons who were not in the civilian noninstitutional population and then were classified as labor force nonparticipants.
 

Among the third group there were an estimated 319,000 persons who in May were not counted in the civilian population and were classified as labor force nonparticipants in June. Included in their ranks were youngsters who just turned age 16, persons released from institutions, and those who returned to civilian life from active-duty military service.
 

In the second group there were an estimated 2,149,000 who were jobless in May and were classified as not in the labor force in June. Some -- perhaps many -- of those persons dropped out of the labor force due to poor job opportunities. But there are other reasons that include caring for a family member, pursuing technical training, taking early retirement, and deciding to indulge for a while in some leisure-time activity.
 

We simply do not know if they will return to the labor force sometime in the future. What we do know is that in May there were 2,076,000 persons who were classified as not in the labor force who were counted as unemployed in June. Thus there were nearly as many who moved from not in the labor force to unemployed as there were those who were jobless and then left the labor force.
 

In the first group there were an estimated 4,756,000 persons who were employed in May and were classified as not in the labor force in June. Thus, the increase in the ranks of labor force nonparticipants in June was mainly from those who were employed in May not from those who were jobless. Some of the same reasons apply to those who were employed in May and then were nonparticipating as we indicated for the jobless who transitioned to labor force nonparticipation. Caring for a family member, pursuing technical training, taking early retirement. At the very same time, however, 4,314,000 were not in the labor force in May and were counted as employed in June.
 

The total number of workers changing labor force status from one month to the next is very substantial. There were a total of 6,905,000 persons in the labor force in May, either employed or unemployed, who were classified as not in the labor force in June. The gross flow in the opposite direction was estimated at 6,390,000. Thus more than 13 million persons changed status from May to June though this dynamic change is glossed over in the monthly statistics reported in the media that indicate that on a net-change basis there was a 640,000 increase in the number of persons not in the labor force.
 

It’s not that the numbers reported in the media are wrong. Instead, they are drawn hurriedly with too little attention to details such as point of comparison. For sure, the labor force participation rate is lower today than at any time since 1978 but it is higher than at any time in the preceding 30 years. Is the sky falling?    
 

Edward J. O’Boyle is Senior Research Associate with Mayo Research Institute

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Mayo Research Institute. Permission to quote is granted when the source is acknowledged.