Low Labor Force Participation Skews Unemployment Numbers

A critical look at the unemployment numbers released today reveal its not the pick up in employment that caused the drop in the unemployment rate but a decline in the labor force participation. The labor force has grown. But it hasn't grown as fast as the overall population. The result: The proportion of the population either working or seeking work has fallen from 64.2 percent to 63.7 percent. That's known as the labor force participation rate. There isn't ceremony surrounding the joining or withdraw from the labor force. When the employment rate is measured, very much like a Gallup or Rasmussen poll, one question that is ask is the respondent looking for work. If the respondent replies "no" then he or she is not counted in the labor force. This cuts both ways. As the economy picks up, if it ever does, more people will re-enter the labor force causing the unemployment rate to go up even when there is a net jobs gain. Today's labor force participation rate is as low as it was in 1981.