Laia Sears just doesn’t count any more.
That is, when the government periodically totes up the number of people with jobs or looking for one – which is how it calculates unemployment rates – it won’t include Sears, 36. That’s because she decided to quit her job to stay home in Atlanta’s Ormewood Park with her baby boy, Benjamin.
She can afford to stay home since she has some family savings and her husband is a software developer for a large company.
“We are just very, very lucky,” she said. “My long-term plan is to go back into the workforce, maybe have another child, stay home for a couple years and then go back to work.”
For now, Sears is part of a somewhat puzzling, sometimes troubling trend: the dropping share of people in the workforce. In the past few years, millions have dropped out. In Georgia the “labor participation rate” is down to 61.7 percent, from nearly 70 percent in the late 1990s. The question is, why?
“Economists really don’t have a good handle on what drives the labor force participation rate,” said John Robertson, senior economist at the Federal Reserve Bank of Atlanta.
Several factors figure in. For one, people are aging out of the workforce at a rapid clip. And economic change has driven large numbers of others back to school or into work situations that don’t show up in the data. Some, like Sears, have gone to the sidelines voluntarily.
Yet there’s also evidence that many people have also become discouraged with the job search and given up looking.
It’s that last option that has economists worried — and that makes the falling labor participation rate a topic of political debate, sure to be bandied about between now and 2016’s presidential election.
‘A worrying trend’
“If workers are too discouraged about the prospects of finding a job, the labor force participation rate for the U.S. economy will continue to decline,” Aparna Mathur, a resident scholar at the American Enterprise Institute, testified to the Joint Economic Committee last week. “This is a worrying trend.”
A high ratio of workers who don’t work is a waste of economic potential, as well as a human cost. It also tilts the “dependency ratio,” the share of people whose economic activity helps support those who do not or cannot work.
Maybe it is just the demographics. After all, a huge part of the population – baby boomers – is moving by the millions into retirement age. Economists say they account for part of the drop in participation.
On the other hand, economic distress and personal preference also means some boomers are staying in the workforce past retirement age.
Lois Ricci of Tucker, 72, has been a registered nurse for a half-century. Along the way she went back to school and earned a doctorate and became a college-level teacher.
She still teaches at Kennesaw State University, Clayton State and the University of Georgia.
“I have never been out of the workforce. I think a lot of my peers are going to work as long as they can. I know a lot of people who have gone back in.”
But her neighbor, Brad Carroll, also 73, has been retired since 2001.
“I was a social worker at VA Medical Center and I enjoyed doing it, but it got very stressful,” he said. “Once I figured out I could pay off my mortgage, I retired.”
Across age groups
In every other age group, participation also has fallen steadily. The national rate has dropped to a 37-year low of 62.6 percent.
Economists say participation is a “shadow statistic” – one that provides information about the job market.
When people drop out of the workforce, they are not counted as unemployed, so a falling participation rate is a sign that the job market is not as good as the unemployment rate says it is.
The state’s current jobless rate – which includes only people actively seeking work – is the lowest it has been since 2008: 6.1 percent.
If the participation rate were as high as it was before the recession, more than a half-million more people would be in the Georgia workforce and the jobless rate could be dramatically higher, said Michael Wald, former Labor Department economist now Atlanta-based analyst.
While it’s true that the economy has been adding jobs, the unemployment rate also falls when people drop out of the workforce, Wald noted.
Seen in that light, the falling participation rate is a sign of “slack,” a market where labor is in ample supply and wages typically do not rise much.
“It’s counter-intuitive,” he said. “But sometimes a falling unemployment rate may be a negative indicator.”
More than 8 million jobs were lost in the recession and while the economy has recouped those losses plus 3.5 million more, the population also has risen over those seven years, said Elise Gould, senior economist, Economic Policy Institute. Hiring has simply not caught up to where it should be.
Participation has fallen because there aren’t enough jobs, she said.
“I think a lot of it has to do with the weak labor market.”
An echo of change
Some say the falling rate isn’t about hiring, but rather is an echo of changes in the economy.
The government bases its data on a system of work – full-time jobs – that is being eroded by self-employment, consulting, off-the-books work for cash and freelancing in the “gig” economy, said Jeff Tennery, CEO of Virginia-based Moonlighting.
The company lets people offer services while others seek workers for short-term jobs.
Like drivers for Uber or Lyft, these people should be counted as working, but when the government calls, they may not see themselves as having jobs, Tennery said. “I would say that most people classify themselves as not working.”
Most economists acknowledge that there is an off-the-data-grid economy that is impossible to measure, but argue that it is not big enough to fully explain the falling participation rate.
Maybe it’s about a change in attitude, not data.
Thomas Smith, labor economist at Emory University’s Goizueta School, said lower participation may reflect post-recession choices: The drop-outs are people who were a second paycheck in a household, people who could save money on commuting or childcare costs, people who had savings and were old enough to qualify for social security and Medicare.
Moreover, passage of the new health care law meant many workers didn’t need to stay in jobs just for the health insurance.
“I don’t see falling participation as a problem,” he said. “I see it as an opportunity to evaluate what the choices are. Everybody wants to say, ‘It’s a good thing, it’s a bad thing,’ but I don’t think so.”
Still, as hiring continues to pick up, the falling rate should reverse, he said.
“There is a slight upward push in wages. As that is happening, I think a lot of people will say, ‘Maybe this is a good time to jump back into the labor market.’”
