A Deceiving Unemployment Rate

Working Age Labor Participation Rate

The preliminary jobs report for April was released today and it looked to be very promising. The country was said to add 288,000 jobs in April with the unemployment rate making a tying post-recession drop of .4%, from 6.7% to 6.3%. This seems to be a large turning point for the economy but when digging deeper into the data the optimism starts to fade. The addition of 288,000 jobs cannot explain the .4% drop in unemployment. The report states that, “the unemployment rate fell from 6.7 percent to 6.3 percent, and the number of unemployed persons, at 9.8 million, decreased by 733,000.”

The cause of the drop of unemployment is explained further into the jobs report, stating, “The civilian labor force dropped by 806,000 in April,… The labor force participation rate fell by 0.4 percentage point to 62.8 percent in April.” This large drop in labor force participation is the cause for a better looking unemployment rate and it means that the job market is so difficult that a majority of the 806,000 people decided that it was not worth looking for employment. Some argue that the drop in labor participation is mostly caused by baby boomer retirement. This does not match the data. Overall labor force participation has dropped to a 36 year low and labor force participation of 25 to 54 year old (prime working age) reached a 30 year low (as seen in the chart above).

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