The good news is that the unemployment rate continues to decline. Now it is at 8.1%. Unfortunately, the way we got there is less than encouraging. In April, the country created 115,000 new jobs. The U.S. lost 8.8 million jobs between 2008 and 2010. Now, three years into the “recovery,” we are still short over 5 million jobs. So how did the unemployment rate drop? As has been the case for some time now, the level of unemployment dropped not because workers found jobs but because they left the eligible workforce – a total of 342,000 former workers simply stopped looking for work.
The civilian labor participation rate (those working or looking for work) fell in April to 63.6%. That is the lowest rate in 31 years, since December 1981. Brittney Spears was just born, Poland was starting its struggle for freedom, the first death from AIDS was reported (but it wasn’t yet known what the cause was) and President Reagan was fighting the “Evil Axis.”
So why are so few Americans working or seeking work? There are reasons, such as retiring baby boomers. However, perhaps the biggest factor is the ongoing lack of economic growth. Over the past 12 months, average weekly earnings rose 2.1%, but with inflation at 3% it is wiping out any economic value. As a result, many second earners in a household don’t retain any economic benefit from working after they account for child care, commuting, etc. The extension of unemployment benefits to 99 weeks is another factor. Lack of skills for the currently available jobs will leave many unemployed for years to come.
When hiring does pick-up, it could be a very long-time before we see significant improvement in the jobless numbers. At some point, there might be enough new job creation that the lack of qualified workers will drive up the wage to encourage workers to return to the “actively seeking” rolls. But then-- the millions returning will push-up up the unemployment numbers once again.