Workforce dropouts: Frustrated, retired or lack skills

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Dropping out in droves

“The younger generation is driving the broad stagnation/contraction in the labor force,” said Mr. Porcelli, noting that the share of 20- to 24-year-olds in the workforce fell to 69.7 percent last month — the lowest since 1972 — while the share of 25- to 34-year-old workers, at 81.1 percent, is also near a 40-year low.

The figure for prime working-age millennials, in particular, reveals the stunning weakness of the economy, he said. “That was closer to 84 percent when the recession took hold,” he said.

“The improvement in the unemployment rate is offering nothing but a head-fake” because it does not reflect the severe underemployment problem among youth, he said.

While many young people are sitting out the hard times rather than trying their luck in the job market, economists point out that they can’t do that forever. At some point they will surge back into the job market, possibly in large numbers that will paradoxically end up driving the unemployment rate higher, at least in the short term.

Given the long-running trends toward retiring earlier and staying in school longer, it is hard to tell how many of the dropouts would have stayed in the market if the recession had never occurred.

A study by the Economic Policy Institute, a labor-funded think tank, makes a stab at estimating that. Taking into account the underlying trends, it concludes that about two-thirds of the missing workers — or nearly 4 million people — are truly discouraged workers who would have stayed in the job market and not dropped out between 2007 and 2011 if jobs had been available.

Millions of missing workers?

By the EPI’s estimate, a proper accounting for the missing workers would push the labor force participation rate nearly 2 percentage points higher to 65 percent and produce an equal jump in the unemployment rate to about 10 percent. But the extent of this larger unemployment problem may not be known for some time.

“The job market is slowly healing,” said Heidi Shierholz, author of the study, but “it is unlikely the missing workers will enter or re-enter the labor market until job prospects are strong enough that they will not face months of fruitless job searching.”

A few economists are skeptical of the theories on large-scale worker dropouts. Ward McCarthy, managing director at Jefferies & Co., finds little use for the department’s household survey, which provides information about the number of those leaving the workforce each month. The survey since the recession has fluctuated wildly, sometime showing a half-million people exiting the workforce in one month, and in other months showing nearly as many rejoining the market. Most economists consider the department’s monthly survey of businesses more reliable. It has shown steady if unspectacular growth of about 100,000 a month in jobs since 2009.

Among the possible explanations for the large number of dropouts, Mr. McCarthy said, is that many people laid off during the recession have reached the end of their extended unemployment benefits, which are available for about two years in most states. Once they lose those benefits, they are no longer required by federal law to keep looking for work, so many of them simply stop trying at that time and find other things to do, he said.

Benn Steil, a fellow at the Council of Foreign Relations, contends that the Fed and everyone else is wringing their hands for no good reason. He says the current worker-participation rate is consistent with the trend since 2001 of Americans working less. The aberration from the trend, he says, actually occurred in the years just before the recession, when the economy was growing so robustly that it drew workers into the market who otherwise would have decided to retire.

“Today’s labor force participation rate is precisely where its post-2001 trend line suggests it should be,” he said. “The broader picture is one of a steadily declining [rate] as the population ages.”

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