Participation in US – Looking solely at the falling unemployment rate overstates that recovery

I am pleased to be here today to address an important topic for understanding the health of the labor market and the economy overall: the labor force participation rate, which currently stands at 62.6 percent. The continued decline of the unemployment rate since 2010 is the most commonly cited piece of evidence that the labor market is recovering. Indeed, it is undeniable that the labor market has improved considerably in the years since the Great Recession, as unemployment has fallen to 5.3 percent, its lowest rate in seven years. Despite this progress, however, the labor market remains troubled. Simply relying on the unemployment rate as an indicator of the health of the job market masks underlying problems, many of which have persisted for decades. In order to fully understand the current state of the labor market, policymakers need to take into account not just the unemployment rate, but also other indicators of how the labor market is functioning, including the labor force participation rate.

My testimony draws five major conclusions:

• The labor market is recovering from the deepest economic downturn since the Great Depression. The private sector has added 12.8 million private-sector jobs over 64 straight months of job growth, the longest streak of private-sector job creation on record. The unemployment rate is down to 5.3 percent, a seven-year low.
• While the labor market is on the mend, looking solely at the falling unemployment rate overstates that recovery. Other indicators of labor market health, including the labor force participation rate, suggest that there is more work to be done.
• The decline in the labor force participation rate predates the Great Recession and is mainly the result of several structural changes in the labor market, including the aging of the workforce.
• Recent declines in the labor force participation rate that are not explained by long-standing structural changes are largely due to persistent business cycle effects. Five years into the labor market’s recovery from the most severe recession in recent history, demand remains slack.
• Policy can play an important role in boosting the labor force participation rate, but policymakers need to focus on the correct levers. Persistent slack demand suggests that fiscal and monetary policies are an important first step. In the absence of political action on those fronts, however, family-friendly policies and criminal justice reform are important options.

via The Declining Labor Force Participation Rate: Causes, Consequences, and the Path Forward – Washington Center for Equitable Growth.