Labor participation has hit a 38-year low, and that’s a problem

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• JUDY WOODRUFF:

  The latest U.S. jobs report brought some sighs of relief. The overall number of new jobs showed the economy is not starting to sputter, as some had feared earlier this year.

  But other patterns in the labor market are a source of worry for many workers, and for those who been looking for a job for a long time. Wages are flat, and the labor participation rate is at a historic low.

  We're joined by Harry Holzer. He's a professor of public policy at the Georgetown University Public Policy Institute, and he's former chief economist for the Department of Labor.

  And we welcome you back to the program.

• HARRY HOLZER, Georgetown University:

  Thank you, Judy. It's good to be here.

• JUDY WOODRUFF:

  So, let's start with the good news. It looks like healthy growth in jobs.

• HARRY HOLZER:

  Yes. The number of 223,000 new payroll jobs is about what people expected, maybe slightly lower. But it's in line with what we have seen recently. And it's consistent with that kind of slow, but steady tightening of the labor market.

• JUDY WOODRUFF:

  And this is across different wage levels, wage groups; is that right?

• HARRY HOLZER:

  That's right.

  Most industries, at least on the service side of the economy, showed some healthy job growth this past month. We didn't see it in manufacturing. We didn't see it in construction. But many other sectors, professional services in the high end, restaurants and retail in the low end, health care, jobs in the middle, all showed nice job growth.

• JUDY WOODRUFF:

  And then, as we were saying, but earlier this year, there was worry that things might be slowing down, so this tells us things are on a more solid footing.

• HARRY HOLZER:

  I think so.

  We have now had — we had one disappointing month back in March, but the last three months now, which is the entire second quarter, show pretty solid job growth. So those sort of earlier worries are no longer bothering us anymore.

• JUDY WOODRUFF:

  And this is a month, however, when the wages — wages were stagnant. Now, what does that tell us?

• HARRY HOLZER:

  Well, the wage numbers have been bouncing around. Last month, we had a good month in wages. This month, they were totally flat.

  What that is saying is that, even with the tightening that's occurred, the job market still isn't tight enough, and there's still not enough pressure on employers for consistent wage pressure.

  If you average out all these different months, you're getting wage growth about 2 percent. That's just slightly ahead of inflation. That's nowhere near what we'd like to see.

• JUDY WOODRUFF:

  But what I really do want to focus on, though, yes, the unemployment rate was down, but what they call the labor force participation rate is at its lowest level in 38 years. What's happening here?

• HARRY HOLZER:

  Well, a lot of people have been dropping out of the labor force.

  Now, to be in the labor force, you have to do something to look for a new job in the previous month. And a lot of people have stopped doing that. And that rate has been declining now since the great recession started. We knew some of that was going to happen. We knew that the baby boomers were reaching retirement years and they were going to start leaving.

  And that accounts for about half of the overall drop we have seen in the last eight years or so. What's more worrisome, what's been more surprising is that even people, say, below the age of 55, what we call prime-age workers, have also been leaving the labor force, and we don't see any signs that in great numbers they're coming back.

  And that's a big problem. That's a problem for them in terms of their own earning capacity, but also for the country as well.

• JUDY WOODRUFF:

  What are the explanations?

• HARRY HOLZER:

  There's different explanations.

  I think some people maybe look at the wages they're going to get and they decide it's just not good enough. Some people have been out of work for a long time, and they get discouraged. They know their skills get rusty, their contacts get rusty. They don't think employers are going to hire them and so they just drift away.

  Some people start doing other things. Maybe they start working off the books. Maybe they go on disability. Maybe they become the stay-at-home parent. Once you start doing something else, it's just a lot harder to turn around and come back into the labor market, which remains a pretty competitive market.

• JUDY WOODRUFF:

  Is there a good understanding of what happens? Because I know for a long time, we were talking about the long-term unemployed, people who kept looking and kept looking. They weren't finding work. But now we're talking about people who have just given up. Is there — do we understand what happens in between?

• HARRY HOLZER:

  Not completely. But we do have some sense that once you're in the category of being long-term unemployed, it's just harder to get back.

  And some people do come back. Some people do get a job after being out a year, two years, three years. But some people don't. And the longer they're out, the less solid their prospects are when they come back. And a lot of them, as I sort of said, just decide to do something else and drift away.

• JUDY WOODRUFF:

  And does history tell us, as you say, that these people, once they're out, they stay out?

• HARRY HOLZER:

  It's not necessarily permanent. You can imagine a really strong labor market, of the kind that we had at the end of the 1990s, might draw some people back in.

  But, absent that, it is going to be harder and harder for these people. And they are going to get more settled in whatever other roles they're playing right now. And it's going to be tougher to get them back in.

• JUDY WOODRUFF:

  And that gets baked into the overall employment picture.

• HARRY HOLZER:

  That's right. That's right.

  And, as I said, it's bad for the country, because we're losing productive capacity. We simply can't afford to have several million people stop working and stop looking for work.

• JUDY WOODRUFF:

  Harry Holzer with Georgetown University, thank you.

• HARRY HOLZER:

  Thank you, Judy.

• JUDY WOODRUFF:

  We appreciate it.