Written by: Alex Rogowski
Labor Force Participation Rate
Politicians, media, and economists all use the unemployment rate to gauge the health of the US economy. The unemployment rate is the percentage of the total labor force that is unemployed yet currently seeking a job. The government began officially tracking the unemployment rate in 1950, yet they have been able to estimate unemployment rates prior to this time. The highest unemployment rate occurred during the 1930’s, when the rate skyrocketed to 23.6% and its lowest rate came during World War II when the unemployment rate fell to 1.2 percent in 1944.
During the recession that began in 2008, the unemployment rate spiked to 10% in October of 2009, and it has dramatically fallen to its current level of 5.8%. These numbers would generally indicate that the economy is trending in the right direction, but that may not be the case. In light of the sharp decline in unemployment; why aren't people viewing the economy optimistically? The answer may be hidden in the Labor Force Participation Rate (LFPR) which has seen a steady decline since the recession.
The Labor Force Participation rate measures the active members within the labor force. To be considered active, you must either have a job or currently seeking one. In October of 2009 our participation rate was 65.1%, even with 10% unemployment. Currently our participation rate has dipped to 62.8%, almost a 3 point drop. The correlation quite possibly could be a result of fewer people actively looking for jobs. The consequence of people dropping out of the workforce completely, may artificially improve the overall unemployment number, masking the true state of unemployment within the economy.
Unemployment Chart
Many people are questioning how the LFPR could decrease at such a high rate. One possible component of this decline is that the Baby Boomer generation is just beginning to retire. Roughly 17 percent of Baby Boomers have retired up from 10 percent in 2010. Some Baby Boomers that may have lost their job in our most recent recession may not have attempted to resume employment, while others have simply retired. The Baby Boomer generation which consists of those born between 1946 and 1964, makes up for about 75 million people.("What Baby Boomers' Retirement Means For the U.S. Economy." )
A study done by Bob Funk, Chief executive of Express Employment Professionals found that 47% of unemployed people have completely given up on looking for work.("Why Are People Leaving the Workforce?") This suggests that a certain amount of workers have become discouraged and feel it’s impossible to find suitable employment. Another contributing factor to the declining number could be the expansion of Food Stamps and Disability programs which are keeping many out of the active workforce. With recent increases in benefits the unemployed may feel its advantageous to continue receiving benefits rather than accepting a low paying job.
The unemployment rate has been the standard indicator of where the economy may be headed. Historically, this measurement has been very reliable barometer of the direction of the economy. However since the 2008 recession this may not be the case. Additional measures such as Labor Force Participation may be helpful in gauging the true state of unemployment within the US economy. Therefore, is the unemployment rate the only true way you can figure out the direction of the economy?
Works Cited
Casselman, Ben. "What Baby Boomers' Retirement Means For the U.S. Economy." FiveThirtyEight. ESPN, 2014. Web. 10 Nov. 2014.
Krulick, Al. "United States Unemployment - History, Causes & Consequences." Debtorg News. Debt.Org, 2014. Web. 09 Nov. 2014.
"Labor Force Participation Rate Chart." Bureau of Labor Statistics Data. US Bureau of Labor Statistics, 2014. Web. 07 Nov. 2014.
Peterson, Kim. "Why Are People Leaving the Workforce?" Why Are People Leaving the Workforce? CBS Interactive, 6 Oct. 2014. Web. 09 Nov. 2014.
"Unemployment Rates." Bureau of Labor Statistics Data. US Bureau of Labor Statistics, 2014. Web. 08 Nov. 2014.
I believe that more funding should go into food stamps and welfare but if it's discouraging people from getting a job, I'm reconsidering my stance. I do though find it pretty amazing how much and how fast our economy recovered and how fast our unemployment rate lowered. The economy should not be determined on unemployment because there are so many more good (and bad) qualities of an economy.
ReplyDeleteI am one of those people that are incredibly against welfare and food stamps, unless you are old or physically unable to do work. I believe that those two things encourage people to be lazy and not try as hard to find a job, and continue the "American dream". I also agree with Jack though, where it is strikingly amazing how quickly the economy has recovered from the 23.6% and how much its fluctuating.
ReplyDeleteThere should be less funding that goes into food stamps and welfare programs. Currently it is way too easy to get both, and fraud is a big issue, which causes the government to lose millions of dollars. However, I believe with the coming retirement of the baby boomers, more jobs will become available, which might cause a decrease in the unemployment rate.
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