TOPICS > Economy

Weak job growth, unemployment drop signal ‘unwinding’ of labor participation

January 10, 2014 at 12:00 AM EDT
The December jobs report showed a gain of just 74,000 jobs, while the drop in unemployment was due largely to people leaving the workforce. Economics correspondent Paul Solman reviews the numbers and Judy Woodruff talks to Dean Baker of the Center for Economic and Policy Research and Robert Shapiro of Sonecon.

JUDY WOODRUFF: Today’s jobs report was surprising, and by most accounts, disappointing. It renewed concerns about the strength of the labor market during this recovery.

NewsHour economics correspondent Paul Solman begins a two-part look, part of his ongoing reporting Making Sense of financial news.

PAUL SOLMAN: When it came to jobs, 2013 ended with a whimper. According to the Labor Department’s survey of employers, December saw the lowest monthly gain in three years.

LISA LYNCH, Brandeis University: It was a stunning report, but not stunning in a good way.

PAUL SOLMAN: Former Labor Department chief economist Lisa Lynch:

LISA LYNCH: The economy only added a little over 70,000 jobs. And there were whispers of 300,000 jobs being added to the economy. The unemployment rate dropped. That’s usually good news, but it dropped for all the wrong reasons. It dropped because people dropped out of the labor force.

PAUL SOLMAN: Is this the latest example of what we have been calling for a decade now a jobless recovery?

LISA LYNCH: I think its always important to not get too carried away with any one month’s report. So we also saw in today’s report upward revisions in the employment numbers for last month, in November. Over the course of the year, we’re adding 182,000 jobs a month. That’s the monthly average.

That’s keeping pace with the pace of growth of the population, making a small dent into the pool of the unemployed, but not at the pace that anyone would like to see.

PAUL SOLMAN: As to the specific industries, 6,000 jobs were cut in health care. That’s the first decline in 10 years. Another sector taking a pounding, construction, which shrank by 16,000 positions. But Mother Nature may have been a factor there.

LISA LYNCH: The low employment numbers that we saw in this month’s report may be partially explained by cold weather in early December that kept people from their jobs, especially in the construction industry.

PAUL SOLMAN: The official unemployment rate, however, based on a survey of households, actually went down, from 7 to 6.7 percent. But the drop seems largely because people left the work force and were no longer counted as unemployed.

LISA LYNCH: People are counted as unemployed in the official survey if they are available for work and have looked for work over the course of the past month. But if they’re available to work, but they have stopped looking, they’re no longer counted as unemployed. But the Labor Department does ask a question, are you interested in work, but you have stopped looking because there don’t seem to be possibilities out there for you?

And people answer that, and over 900,000 people last month said that they would like to work, but they are discouraged because they don’t see employment possibilities in their community

PAUL SOLMAN: In fact, the portion of the population now working or looking for work is smaller than it’s been in decades, says Lynch.

LISA LYNCH: So, the labor force participation rate is now down to the lowest level we have seen since 1978.

PAUL SOLMAN: What’s going on?

LISA LYNCH: Good news is some of that is driven by people delaying entry into the labor market, as they’re staying on in school. Part of it is also driven by people who are close to retirement, are having difficulty finding alternative employment, and are dropping out, or just frankly have sufficient income and are retiring and are no longer looking for work.

The troubling component of the fall in labor force participation is the fall for people that are in their prime working years. And there, we see larger decreases in labor force participation for both men and women. And this is a problem.

PAUL SOLMAN: Moreover, even of those who haven’t given up their job search, nearly four million reported in December that they’d been looking for six months or more. That four million total essentially hasn’t budged since late summer.

All of this comes amidst the battle in Washington over whether to extend unemployment benefits for those long-term unemployed. Senate Democrats have scheduled a Monday vote on the extension. The law allowing for the program expired last month. It’s unclear whether the measure will garner enough Republican support to pass.

JUDY WOODRUFF: Some further perspective now on the questions raised by Paul’s report, particularly on this critical issue of workers leaving the job market.

Our guests are both economists. Dean Baker is co-director of the Center for Economic and Policy Research, and Robert Shapiro is the co-founder and chairman of Sonecon, an economic advisory firm.

And we welcome you both back to the program.

DEAN BAKER, Center for Economic and Policy Research: Pleasure to be here.

ROBERT SHAPIRO, former U.S. Undersecretary of Commerce: Thank you.

JUDY WOODRUFF: So, Dean Baker, to you first. What stands out to you mainly in this report for December?

DEAN BAKER: Well, I guess there were two things.

One, looking at the household survey, the big fall in the number of people in the labor force that was pronounced really across-the-board, but among African-Americans, we have the lowest rate of labor force participation among African-American men since we have kept that count. So that was really striking.

And then on the establishment side, as Lisa had said, people were expecting as many as 300,000 jobs. Just to see 75,000, that was certainly a very weak number. So to see two independent surveys both showing weakness same month, that indicates, I think, the labor market is certainly weaker than most people had perceived.

JUDY WOODRUFF: Robert Shapiro, do you see it as weak as Dean Baker does?

ROBERT SHAPIRO: Well, the fact is the labor market has been weak for a decade.

We keep on comparing what’s happening today to our memories of job creation in the ’80s and ’90s. The fact is, job creation is doing significantly better in this expansion than it did in the 2002-2007 expansion. But both of them are very weak by historic standards. This weakness has continued, but there is — it is easy to misinterpret some of these numbers.

JUDY WOODRUFF: So, it sounds like you’re saying this is being judged against the wrong standard; is that what you’re saying?

ROBERT SHAPIRO: Well, I’m saying that there are a lot of factors entering into this.

One of them, we talk about the decline in the labor participation rate. That is driven mainly by demographics. This is the unwinding of the enormous increase in the labor participation rate we saw with the boomers, who are not only an unusually large generation, but for whom women participated, went into the labor force in much larger numbers and shares than historically.

That drove up the labor participation rate 10 percent. And the decline in the labor participation rate begins in 2009, which is just when the boomers begin to retire.

JUDY WOODRUFF: Are beginning to retire.

Dean Baker, so what about that? You hear him saying it’s demographics.

DEAN BAKER: No, I really would say very differently.

First off, in terms of comparison, I think the proper comparison is another severe downturn. We lost around nine million jobs. You expect a quick jump back, and we didn’t see that. So you compare this to ’81-’82, we haven’t seen anything like the jump back you had then.

But it is easy to see the big falloff in labor force participation is among prime age workers, 25-to-54-years-olds. That is down by four full percentage points. That is equivalent to five million people in their prime ages. They are not retiring at age 50.

JUDY WOODRUFF: You are saying these are not baby boomers?

DEAN BAKER: That’s right. Well, these are the bottom end.


JUDY WOODRUFF: The younger, not the older end of the baby boomers.

DEAN BAKER: Yes, these are people too young to retire.

ROBERT SHAPIRO: The fact of the matter is that the peak of the baby boom comes from 1949 to 1957. That’s the highest birth rates. Those people are now 57 to 65.

The first boomers began to retire in 2000. This is an unwinding of an increase in the labor participation rate, on top of a terrible financial crisis and a decade-long slowdown in the rate of job creation. You know, one of the other facts in this report that helps explain this sharp drop in the unemployment rate, despite the fact we only created 74,000 jobs, is that layoffs fell as well by 360,000.

JUDY WOODRUFF: Which you’re saying is obviously a good point.

But then let’s just pick that up one more time, and then I want to ask you about something else.

Dean Baker, what about — just to look at the age cohort, you know, he’s basically saying this was a decade when people who — were just aging to the point where it was time for them to get out of the work force.

DEAN BAKER: Well, again, we could see that doesn’t explain it, because we have separate data on people 25 to 54.

And those people are leaving the labor force. We’re down five million jobs among that group of people. These are not people retiring. So, that simply can’t explain it. I understand about the baby boomers aging, being one of them, as I think Rob is also.


DEAN BAKER: You know, we’re aging. But we’re still in the labor force. That doesn’t explain the loss of prime age jobs.


ROBERT SHAPIRO: It explains — it explains about half of it.

And so this notion that this is all about a particular economic problem is only half-true. But it does explain about half of the decline in labor participation.

JUDY WOODRUFF: How does the age of people who are stepping out of the work force, whether it’s because they have to or because they want to, how does that affect the economy?

DEAN BAKER: Well, it’s a good question. You know, we have actually seen people staying in the work force longer. So, actually, the people who had big the job gainers, if you go back — this is a little bit different in the last year, but the people who have been big job gainers were in the age group of 55 and over. So people were actually staying in the work force longer than they had previously.

I mean, that’s still true, except that the increase isn’t as much as it had been. But there is a big question — I don’t think it’s resolved — as to whether when these people stay in the work force, that is pulling in younger people by being complements, in effect, an older worker training a younger worker, or whether they’re substitutes.

And I think it has got to be a bit of both. The question is, how does that come out on balance?

JUDY WOODRUFF: So, Robert Shapiro, step back. Look at these numbers. What are you most — what are you most optimistic about looking at this? And you have been talking about that. And what worries you?

ROBERT SHAPIRO: Well, the best news in this was the continued sharp decline in the number of layoffs.

This is something we usually see at an earlier point in an expansion. It’s come later because this expansion is different in many ways from a typical expansion. And what is certainly most troubling is what Dean has noted. And that is the low number of new jobs being created and the problems for people in their 40s in particular in the labor force.

JUDY WOODRUFF: You want to put a button on this just quickly?


Well, I mean, we would like to see everyone benefiting from growth, and we’re not seeing that. We see a severe shortage of jobs, and wages are going nowhere. So we have had a whole decade where most workers are seeing none of the benefits of economic growth. Not a good story.

JUDY WOODRUFF: All right, well, we thank you both, Dean Baker, Robert Shapiro. Maybe next month will be better.

DEAN BAKER: Let’s hope so.