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Unemployment rate misleading due to shrinking labor force participation

Published: Tuesday, Sept. 24 2013 7:00 a.m. MDT

The last reported figure for the labor force participation rate was 63.2 percent, which is the lowest measurement since 1978.

Steven Senne, File, Associated Press

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Each month the federal Bureau of Labor Statistics, within the U.S. Department of Labor, releases the U.S. unemployment rate, a figure widely followed and an important indicator of economic health. Closely related to the unemployment rate is the labor force participation rate.

The last reported figure for the labor force participation rate was 63.2 percent, which is the lowest measurement since 1978. Although the reported unemployment rates have been generally declining over the past year or two, one of the contributing factors to these declining unemployment figures has been the shrinking group of individuals seeking employment.

Looking at some of the demographic components of the labor force participation rate can provide some useful insights about those who are employed, those seeking employment and those who have removed themselves from the labor market.

For those with a bachelor’s degree or higher and 25 years of age or older, the participation rate was last reported at 75.1 percent. In comparison, those adults 25 years of age or older with less than a high school diploma reported a participation rate of 45.2 percent in the September report.

One of the lower participation rates is observed in the demographic of those seeking employment from the age of 16 to 19. As of the September report, the participation rate fell from just over 43 percent to slightly above 37 percent. Some of this decrease likely is seasonal in nature, but the overall picture for these younger employment seekers appears challenging.

Many factors come into play to influence those choosing to participate in the workforce. Availability of employment, compensation for taking a job as compared to the range of benefits provided to those remaining unemployed, an aging workforce, and many other factors all influence behavior. Looking back to January 2009 at the time of the first inauguration of the current U.S. president, the labor force participation rate was 65.7 percent.

Instead of the most recently reported unemployment rate of 7.3 percent, U.S. unemployment would be a little under 11 percent if the same number of adults were in the labor force today as in January of 2009.

Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.

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