Jobs report shows effects of the incredible shrinking U.S. labor force

If the same percentage of adults were in the workforce today as when Barack Obama took office, the unemployment rate would be 11.1 percent. If the percentage was where it was when George W. Bush took office, the unemployment rate would be 13.1 percent.

That helps explain a seeming contradiction in the unemployment numbers — the rate keeps dropping even though job creation has been soft.

In April, the U.S. economy added a mere 115,000 jobs, according to Bureau of Labor Statistics data released Friday. In a normal month, that would not even be enough to keep up with new entrants into the labor market. But in this economy, it was enough to drive unemployment from 8.2 percent down to 8.1 percent, the lowest point since January 2009.

The explanation is a little-watched measure known as the “labor force participation rate.” That tracks the number of working-age Americans who are holding a job or looking for one. Between March and April, it dropped by 342,000. But because the official unemployment rate counts only those workers who are actively seeking work, that actually made the unemployment rate go down.

Critics of the Obama administration have been quick to seize on this as the real reason for the falling unemployment rate. In February, the Republican National Committee released a research note on “The Missing Worker,” arguing that “over 3 million unemployed workers have called it quits due to Obamanomics.”

Economists say the story is considerably more complicated. For one thing, the trend predates President Obama. And while part of the story is clearly that the labor force is shrinking because the bad economy is driving workers out, another significant factor is that baby boomers are beginning to retire early — a trend that has worrying implications for future growth.

The percentage of Americans in the labor force has been declining for more than a decade. In January 2000, 67.3 percent of Americans had a job or were actively seeking work. By 2007, just before the recession, that had fallen to 66 percent. In January 2009, the month Obama assumed the presidency, it was 65.7 percent. Since then, it has fallen to 63.6 percent, a level not seen since the first year of the Reagan administration.

The implications for returning to what economists call “full employment” are significant. According to calculations by Michael Greenstone of the Hamilton Project, if the labor force grows by 90,000 a month, then an economy creating 200,000 jobs a month would take about eight years to return to full employment. If the labor force grows by 125,000 a month — plausible if discouraged workers begin returning to the labor force — it will take almost 14 years to return to full employment.

It’s easy to see why some workers would, in the current environment, get discouraged and stop looking for work altogether. There are about 3.7 job seekers for every available opening.

“We’re not going to see the labor force tick back up until there are enough opportunities that the people who enter aren’t faced with months of fruitless job searches,” said Heidi Shierholz, an economist at the Economic Policy Institute.