In May, the number of Americans working nearly climbed back to its high of 146 million in 2007, just before the Great Recession hit, the U.S. Department of Labor reports. This “good news” is tempered by the fact that since 2007, another 15.8 million people entered the civilian non-institutional population.

This group, which includes people 16 years of age or older who are not in the armed forces, incarcerated or in homes for the elderly, continues to expand each year. Unfortunately, the number of newly created jobs simply isn’t keeping pace. In turn, one would expect the unemployment rate, which registered 6.3 percent in May, to skyrocket and not decrease as trends indicate. Why? The tremendous number of frustrated job seekers who stop looking for work are no longer counted in the work force, and therefore, no longer considered unemployed.

Not surprisingly, there are at least 7 million people who technically are not in the work force but still want a job, the Department of Labor says. When added to the 9.4 million people who technically are unemployed and by definition, seeking a job, the total number rises to 16.4 million.

And when delving deeper, other negative factors become apparent. For example, in May, the participation rate — the percent of the civilian non-institutional population considered in the work force — was 62.8 percent, the lowest since 1977. Dragging this down, of course, are the large numbers of frustrated workers who can’t find a job and technically have exited the labor force. But another significant factor is the vast number of baby boomers born between 1946 and 1964 who are retiring in droves.

Of all the age groups, young Americans appear to be experiencing the most difficulty. For example, in May, workers age 16 to 19 had an extremely low participation rate of 33.3 percent and an unemployment rate of 19.3 percent. And those age 20 to 24, who had a much higher participation rate of 70.6 percent, also experienced a very high unemployment rate of 11.3 percent.

In The Spotlight

Sliced another way, the participation and unemployment rates were 44.2 and 9.1 percent for those without a high school diploma, 57.9 and 6.5 percent for those with a high school diploma, 67.2 and 5.5 percent for those with some college or an associates degree, and 75.4 and 3.2 percent for those with a bachelor’s degree or higher. Hence, it stands to reason: the least skilled are least likely to find a job in this knowledge-based economy, and therefore, more likely to exit the labor force.

The bottom line: without an understanding of the participation rate, the unemployment rate is not very meaningful. And if job seekers become increasingly frustrated — a likely scenario — they will continue to exit the labor force, making the employment picture appear more rosy than what’s occurring on the ground.

This articles appeared in Global Impact, a Great American Insurance Group publication, June 2014.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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