Workforce dropouts: Frustrated, retired or lack skills

Nearly every month, the same fight broke out between Democrats and Republicans as updated government data showed the U.S. unemployment rate dropping from more than 9 percent to 8.1 percent over the past year: Democrats pointed to the 4.6 million new private-sector jobs created since 2009, while Republicans contended that the rate was falling in part because millions of frustrated people were simply dropping out of the job market because they were unable to find work.

Both sides had a point, economists say. Jobless rates are down both because some people are finding work and because some people have stopped trying.

The big question: Who are all these people who have given up, driving the share of able-bodied Americans in the labor force to a 30-year low of 63.5 percent last month?

They are primarily young people who don’t have much work experience and older people who have decided to retire. But there’s also a lot of people in-between who have tried to find jobs and just haven’t come up with anything, so they’ve decided to sit on the sidelines for a while.

The unemployment rate goes down when people stop looking for jobs, retire or go back to school — even if they’d rather have a job — because they no longer meet the Labor Department’s official definition of “unemployed.” To remain in the jobless category, they must continue actively searching for work, under the long-standing definition.

Despite the political brouhaha over the jobs report each month, the trend toward people working less started well before the Great Recession of 2007-2009 and President Obama’s election in 2008. A principal driver of the trend — the retirement of the baby-boom generation — has been anticipated for years. Everyone agrees that the onslaught of boomer retirements, which started in earnest in 2007, is a major part of the reason why fewer people are choosing to work.

Aging society

“We’re an aging society. We have more people retiring,” and America’s young people are less inclined to work between periods of schooling than they did in previous eras, said Federal Reserve Chairman Ben S. Bernanke, providing his reading last week on why people are dropping out of the workforce in growing numbers.

Also contributing to the decline, he noted: the decades-long trend of women joining the workforce peaked around 2000 and is now on the wane. For years, increased female employment had offset and masked the gradual decline in work participation of men, who had long dominated the workforce, but that is no longer so.

While such demographic trends are “baked in the cake” and would be hard to reverse, Mr. Bernanke emphasized that the exit of otherwise ready and able workers is one symptom of the marked weakness in the job market since the recession. It is the reason the central bank is vowing to keep stimulating the economy until it is convinced nearly everyone who wants a job can find one.

Mr. Bernanke describes the lost potential of millions of idled workers as a “grave concern” both because of the personal tragedy as millions of people drift from middle-class comfort into near-poverty and homelessness, and because the economy and society as a whole are damaged when productive citizens are pushed aside, no longer able to contribute to growth. In many cases, they become wards of the state and a burden on those who do work and pay taxes.

People pushed into early retirement by the recession have driven up claims for Social Security and Medicare benefits years ahead of schedule, moving up the projected insolvency of those fastest-growing entitlement programs. And applications for food stamps, Medicaid and other government benefits are running at record levels.

For their part, younger people who have chosen to go back to school are piling up student loans, most of them guaranteed by the government, driving total student debt to an all-time high of more than $1 trillion and eclipsing every other kind of consumer credit.

Tom Porcelli, chief U.S. economist with RBC Capital Markets, said the behavior of the so-called millennial generation has been pivotal. The trend among teens and 20-somethings toward working less and staying in school longer started at least a decade ago, but it exploded during the recession.

As with previous economic downturns, young people find themselves at a tremendous disadvantage in competing for jobs with older, more experienced workers. Many of those who aren’t avoiding the job market altogether by staying in school are taking menial, contract and part-time work to make ends meet, or even working as unpaid staff just to get the job experience while moving back in with relatives and friends.

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