Is the worst behind us on a key job measure?

“Well, first of all, the labor force participation rate is defined as the percentage of people who are of working age who either have a job or who are looking for work. And working age is typically defined as between 16 and 64. Now in the 1990s, that rate was about 67 percent. Now it has been continually falling since the ’90s, and it is down to 63 percent. And that’s really the source of concern: Why has the labor force participation rate been going down on trend for so long?

“Now a couple of reasons: First of all, I think there are fewer jobs for teenagers. Also more teenagers are going to school, staying in school longer. The drop-out rate is low. Once people, young people get to their 18- and 19-year-old they go to college; they stay in college. So you are
taking a lot of people out of the labor force at the low end of the age range because they are in school and they are staying in school longer.

“Then at the upper end of the age range, we have a lot of Baby Boomers who are retiring, so that’s taking people out of the labor force. And if you account for those two factors, that explains about half of the drop. Now the other half is probably explained by the fact that because the economy has been changing so rapidly there are a lot of people who don’t have the right skills for the jobs that are out there. They get discouraged, they can’t find work, they drop out.

“Now the good news– the good news on the labor force participation rate — is over the last couple of months we have actually seen it rise — not spectacularly, but it has stopped trending downward, and it is beginning to trend upward. So there are some hopeful signs there, that
particularly for those group of folks who don’t have the skills for jobs that maybe they are getting the skills or reducing that skills mismatch. And if that’s the case, we will see that labor force participation rate continue to go up.”