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HPS Jobs Day Missing Workers

HPS Jobs Day Missing Workers

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Matt McDonald argues that the decline in the unemployment rate is not driven by increases in employment, but workers dropping out of the labor force.
Matt McDonald argues that the decline in the unemployment rate is not driven by increases in employment, but workers dropping out of the labor force.

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Categories:Types, Research
Published by: Hamilton Place Strategies on Aug 04, 2013
Copyright:Attribution Non-commercial

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Hamilton Place Strategies | 1
 January 2012
 Jobs Preview 2012:
The Year of the Missing Worker
“You ought to be modeling how many people need to leave theworkforce, not how many jobs need to be created.”
That was a joke from someone who has been following the HPSprojections of job creation needed to get below 8 percentunemployment by Election Day. Like most good jokes, it alsohappens to have a bit of truth to it.Because of the significant declinesin the labor force during thisrecovery, it will be exceedingly difficult for net job growth to get the unemployment rate below 8percent by Election Day without anincrease in the labor force pushing the unemployment rate back up.There are currently over 3 million“missing” workers who should beparticipating in the labor force but are not actively seeking work.This white paper explores the impact of labor force changes on thecurrent employment situation and looks at how different scenariosof job growth and labor force growth could impact theunemployment rate on Election Day.
There are currentlyover 3 million“missing” workers whoshould be participatingin the labor force butare not actively seekingwork.
!
 
Hamilton Place Strategies | 2
The Role of Labor Force Participation in the Unemployment Rate
The size of the labor force makes a big difference in the unemployment rate, andlabor force growth has been lagging estimates since the end of the recession – many people have either dropped out of the labor force, or have not entered in the first place. This has contributed significantly to the decline in the unemploymentrate over time. (See Exhibit 1)To understand how participation impacts the unemployment rate, consider thebasic math. The unemployment rate is a function of the number of people lookingfor work, and the total of those in the labor force:
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The labor force, in turn, is a subset of the eligible, working age population (definedas those 16 and over who are not institutionalized or in the military). It is helpful to think of it in terms of labor force participation:
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Exhibit
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1
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A LARGE FACTOR IN UNEMPLOYMENT DECLINE HASBEEN A DROP IN LABOR FORCE PARTICIPATION
!
Source: BLS
!
11
!
66.5
!
66.0
!
65.5
!
65.0
!
64.5
!
63.5
!
10
!
4
!
7/1/11
!
9
!
1/1/11
!
7/1/10
!
1/1/10
!
7/1/09
!
1/1/09
!
7/1/08
!
1/1/08
!
8
!
7
!
6
!
5
!
64.0
!
63.0
!
   U  n  e  m  p   l  o  y  m  e  n   t  r  a   t  e   (   %   )   P  a  r   t   i  c   i  p  a   t   i  o  n  r  a   t  e   (   %   )
Unemployment rate
!
Participation rate
!
 
Hamilton Place Strategies | 3
There are a couple of important aspects to these equations. First, theunemployment rate is not really a function of those who aren’t working; it’s afunction of those who are actively looking for work and have not found it. Second, those who are unemployed but not looking for work are not captured in theunemployment rate, but are reflected in the labor force participation rate, whichdeclines as people drop out of the workforce or choose not to pursue work at all.(See Exhibit 2)How is labor force participation looking today? At 64 percent, it is well below thepeak of 67 percent during the dotcom bubble, and significantly below the steady state of 66 percent we saw during the 2000s. Given the Baby Boom retirementand other demographic shifts, CBO projections expected it to be declining – 65.3percent at the beginning of 2012. We are now 1.3 percentage points below thatdemographic estimate, the equivalent of 3.2 million “missing” workers. If the“missing” people were in the labor force, the unemployment rate today would be10.4 percent, not the current 8.5 percent. (See Exhibit 3)
Exhibit
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2
!
110
!
221
!
213
!
-136
!
-423
!
65
!
353
!
190
!
317
!
176
!
400
!
200
!
0
!
-200
!
-400
!
Dec
!
Nov
!
Oct
!
Sep
!
Aug
!
304
!
 Jul
!
 Jun
!
May 
!
180
!
Apr 
!
Mar 
!
Feb
!
 Jan
!
-500
!
-300
!
-100
!
100
!
300
!
 Workforce
!
Employed
!
Household Survey (CPS)
!
   M  o  n   t   h   l  y  c   h  a  n  g  e   (  p  e  o  p   l  e ,    0   0   0  s   )
9.1
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9.0
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8.9
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9.0
!
9.0
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9.1
!
9.1
!
9.1
!
9.0
!
8.9
!
8.7
!
8.5
!
UNEMPLOYMENT DROPS WHEN EMPLOYMENT CHANGEIS ABOVE WORKFORCE CHANGE
!
Source: BLS
!
Unemploy-ment
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