NC’s declining Labor Force Participation Rate, and what to make of it

Posted by Dan Barkin on May 29, 2014 

Some pundits worry about the declining Labor Force Participation Rate, the percentage of people 16 and older who are either working or unemployed but looking for work.

Seasonally adjusted, it is 61.1 percent in North Carolina, according to the Division of Employment Security. When the recession started in late 2007, it was 65.3 percent.

The Republicans now running North Carolina’s executive and legislative branches like to point to the state’s dropping unemployment rate as proof that their economic policies are working. It has dropped from 10.4 percent in the beginning of 2011 to 6.2 percent in April, seasonally adjusted.

The unemployment rate looks at the percentage of people who are jobless but seeking work. People not working and not seeking work are not counted. They are not considered part of the labor force. So critics of the Republicans say the unemployment rate is going down because people are discouraged, leaving the labor force and are not counted in the jobless rate. They say the declining Labor Force Participation Rate is a more important number, because it reflects people who have given up hope about getting a job. At the start of 2011, the NC rate was 63.1 percent, so it has dropped two more percentage points. Aha! say the Republicans’ critics.

But a paper written by an economist at the Philadelphia Federal Reserve Bank argues that three things are largely responsible for the drop in the Labor Force Participation Rate, which is a national trend, not just in this state. Much of the drop nationally since the start of 2012, according to Shigeru Fujita, has come because of Baby Boomer retirements. Another longer-term trend has been increasing nonparticipation due to disability. Another reason is an increase in people in college.

Fujita writes: “...(I)t is true that there were more discouraged workers during the post-Great Recession period than before the recession .....However, the size of this group has been roughly flat since 2011. In this sense, it is misleading to attribute the decline in the unemployment rate in the past few years to discouragement. As I pointed out above, the decline in the participation rate since the beginning of 2012 is mostly due to retirement.”

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