Business Week:  Economic Trends
Edited by Michael J. Mandel
 

Climbing out of the Job Pool

It's not unusual for some unemployed workers to stop looking for jobs during a recession. But in this downturn, the retreat from the work force has turned into a mass exodus. The latest report from the Bureau of Labor Statistics showed that the labor force participation rate--the percentage of people either employed or actively job-hunting--fell by 0.8 percentage points over the past year, to 66.4%. That's the biggest year-over-year drop since the early 1960s.

The sharp decline suggests the published unemployment rate understates the damage to the labor market, since people not looking for work are not counted as unemployed. The understatement is particularly bad for the young, among whom the withdrawal from the labor force has been concentrated so far (chart).

Consider the unemployment rate for males ages 20 to 24, which rose to 10.6% in January, 2002, from 7.7% in the same month in 2001. That's bad enough, but over the same period the percentage of this group working or looking for work plummeted from 82.9% to 80.3%. With the exception of one anomalous month in 1999, that's the lowest participation rate on record for this group. If the withdrawn workers are added back into the numbers, the unemployment rate for this age group would be much higher. The situation for young women is similar, but not as extreme.

What's happening is that young workers, facing a bad labor market, are going back to school. BLS figures show that the percentage of young people enrolled in school rose substantially over the last year. By contrast, older workers seem to be in greater demand, rather than less, and more eager to work. The unemployment rate for workers 55 and older has gone up less than a percentage point, even while the pool of older workers in the labor force has expanded (chart). For example, the number of people ages 55 to 64 in the workforce rose 6.8% over the past year. That's a switch from the last recession, when older workers were more likely to be laid off. This time, older workers seem to be a resource rather than a burden, while it's the young who are taking the hit.