Workforce Dropouts Help Push the June Unemployment Rate to a 7-year Low

Thursday, July 2, 2015

June’s Employment Situation report from the Bureau of Labor Statistics (BLS) showed 432,000 Americans dropped out of the labor force, the third-largest decline in four and a half years. That drop pushed the participation rate, the percentage of the working-age population either employed or looking for a job, to 62.6 percent, the lowest since 1977. 

Many things contribute to an individual’s decision to work or not work. People may drop out to take care of children or parents, they may retire, or they may drop out because they feel discouraged because they can’t find a job. To the extent that labor market conditions have been causing people to drop out recently, continued improvement in the job market may lessen that factors role in people’s decisions.

By many measures, the labor market is getting healthier and healthier. The same report from BLS showed payrolls expanded by 223,000 in June. Most of these new jobs were in private services such as professional and business services, health care, retail, and financial services. Plus, wages have been growing at a modest 2.0 percent over the past 2 and a half years, lifting average hourly earnings to $24.95, and other government data show nearly 5.4 million job openings across the country.

The improvements have not gone unnoticed. Consumer sentiment overall is near a an eight-year high while consumer’s view of the labor market, measured as the difference in the percentage of surveyed people who think jobs are plentiful minus the percentage of people that think jobs are hard to get, is close to a seven-year high and above the average level since 1985. So, as the labor market continues to improve, if the participation rate falls further, the likely culprit is personal choice, not the economy.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.