Thanks to the stopped beneficial plan, we witnessed a decreasing unemployment rate ever since last December. But this can never be a good news since the true reason behind all this is more and more people ceasing to spend any effort to find a job in the labor market. As mentioned in my past post, the participation rate in labor market has been reduced to 63.2%, according to the data from WSJ.
Nearly 1.4 million people lost payments when the federal benefits expired on Dec. 28, which directly caused 347,000 people to quit the competition of labor market, according to CNN. Last Friday, the Bureau of Labor updated its latest data for unemployment rate, it seems the rate remained at 6.7% which is same as last update. The peculiar thing here is that as over 192,000 new jobs were created, there is no sign of any change in the unemployment rate, the only explanation is that more people entered job market and got average result. As mentioned by Phil Izzo in WSJ, after many months of people giving up the job search, that could be an indication more people are coming off the sidelines and back into the labor force.
However, the way I interpret this issue is not that optimistic. Below is the graph generated in FRED:
In the graph, the middle orange line is the total trend of participation rate, we can see that it’s been declining much (about 5%-6%) since the recession. It is clear that participation rate at age 25-54 does not changed much (about 2%-3%), and the participation rate at age over 55 has been improving even after the recession. From the graph, we can see that the main forces that dragged the total participation rate down is from the age 20-24 and age 16-19 parts. That’s totally reasonable since both the red line (age 20-24) and blue line (age 16-19) have two same characteristics: volatility and cyclicity. People at that age are mostly students, and for students their participation in job market will raise in June and July and decline in other months. We can see that the trends for both lines are in the rising cycle, this explains why we experienced a boost in job market participation recently.
Now it is clear that the situation is not exactly like what Phil thought, we can have an optimistic anticipation now because more and more student are looking for or already found their jobs. And I would say that after this July the participation rate will suffer from another loss. From the trends showed in the graph, we are still losing more and more job market participation because the main trends of both lines are still downward.
If there is any good news that even exist, it will be that those downward trends are slowing down compares to years before. We can see more update about this in the future.