Our Collapsing Labor Participation Rate

Our Collapsing Labor Participation Rate

June 2015 employment statistics state that we experienced an increase in the Civilian Non-institutional Population (CNP) of 208,000 (those people 16+ who are not in the military, prison, or counted in some other institutionalized setting) while the Labor Force (those Employed -56,000 + those Unemployed -375,000 actively seeking employment) DROPPED by 431,000! It’s no wonder the U-3 unemployment rate fell from 5.5% to 5.3%. Everyone left the Labor Force!

Since the Labor Force fell by 431,000 and the CNP grew by 208,000 (a respectable number), this depressed the Labor Force Participation Rate (LFPR) which FELL 0.3%, moving from 62.9% in May to 62.6% in June – a 452 month low! As a reference point, the last time we reached such numbers was in October 1977, when the LFPR hit 62.4%. At that time, however, increasing numbers of women were entering the labor force.

What does this latest monthly (Labor) report signal?

Now keep in mind that to be classified as unemployed, you may not be employed. However, you must be actively seeking employment. That is, you haven’t completely given up.

In these latest numbers, an entirely different picture was painted. With employment down 56,000, unemployment down 375,000, and the Civilian Non-institutional Population increasing by a normal 208,000, there was nowhere for those new entrants (or re-entrants) to go. Looking at the Employment Picture on simply a net basis, we ended up with 639,000 people moving completely out of the labor force.

The discouraged worker comes into play when you see a drop in the unemployment due to the fact that people give up on seeking employment. That is, the 375,000 dropping out of the unemployed in conjunction with the 56,000 exiting from the employed, for a total of 431,000 leaving the Labor Force…let’s not forget that the Not in the Labor Force grew by 639,000 due to the dropouts from the Labor Force (431,000) and the net effect of the additions to the Civilian Noninstitutional Population (208,000) who were not absorbed into the Labor Force.

The Takeaway for the June 2015 Employment Report

The good news in terms of the Fed taking their promised action on pressuring up the Fed Funds Rate (sooner rather than later) is that if this dynamic (collapsing LFPR, Employment Population Ratio, etc.), keeps up, the Fed won’t act on that threat for some time to come.

The bad news is that if we continue down this same path, in spite of the ballyhooing in the media over lower unemployment rates and job growth in the payroll survey, wages will continue to stagnate, younger workers will find it increasingly difficult to find work, and things like Social Security receipts will continue to fall, driving us ever more quickly to a zero balance in the Trust Fund.

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Written by
Edward Derbin