One of the most important economic releases to come out each month is the Employment Situation Summary report issued by the Bureau of Labor Statistics. This report presents a range of data series related to the nation’s employment and unemployment. The report is compiled by the BLS and the Bureau of the Census, and contains data from two separate surveys: The Establishment survey, which collects data from a sampling of more than 400,000 businesses across the country, and the Household survey, which is based on a sampling of about 60,000 households. It is the most comprehensive look at the labor market until the annual GDP numbers are released – generally 3 months after the end of a given year.
According to the March report, the number of employed persons was little changed from the prior month. Non-farm payroll employment was up by just 88,000 in March, and the number of unemployed people stood at 11.7 million, or down by about 500,000 from the prior month. However, rather than getting jobs, many of these people simply left the labor force, which fell by 290,000 people, bringing the labor force participation rate to its lowest level since Jimmy Carter was President (63.3 percent). Due solely to the drop in the number of Americans considered to be in the labor force, the unemployment rate edged downward to 7.6 percent.
It is the change in the labor force participation rate that has been most interesting during the recent period of economic stagnation. Since peaking in 1997 at about 67.2 percent of working age people, the labor force participation rate has declined steadily, and it has literally fallen off of the cliff since the height of the recession in 2008. There are a number of reasons for this. First, the population is aging and living longer so there are more retired people in the overall labor force (which is considered to be people between the ages of 16 and 64). In addition, a larger percentage of younger people are attending college. While this is a benefit in the long term, it has pulled down the labor force participation rate some. Finally, there has been a “baby boomlet” that has led some working age women to leave the labor force.
These predictable demographic trends explain some of the decline in the labor force participation rate; however, there are also policy decisions that have also impacted it, particularly since 2009. First, there are more avenues for people to leave the labor force and to receive permanent social welfare support. In fact, the number of people on Social Security Disability has grown by over 1.4 million people since 2008. This represents about 1 percentage point of the decline in and of itself. Other reasons include discouragement, and family reasons (for example taking care of elderly parents). But overall these categories do not represent the bulk of the approximately 7 million people who have left the labor force over the past few years but are still available to work. Many of the rest can be considered to be simply marginally attached to the labor force and living off of their parents’ income, a spouse’s income or in some sort of group setting that does not require them to work.
Another possibility is that the underground economy has been growing more rapidly over the past few years as tax rates have risen and the regulatory burden of conducting business has become more extreme. While it is difficult to determine the size of the underground economy, other countries with complicated and stifling labor laws (for example Greece) have seen the underground economy grow to significant levels. This is something that businesses and organizations need to keep a close eye on – particularly if they are tightly regulated, as these underground entrepreneurs may begin to siphon significant business opportunities away from more established businesses.