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Labor force shift

When the Bureau of Labor Statistics earlier this month reported that total nonfarm payroll employment nationwide increased by 287,000 in June, economy watchers were stunned. No one expected such a jump in hiring, especially after the report for May showed virtually no net gain.

Still, some observers could muster a smile, noting the average job gain for the second quarter was 147,000, down sharply from 196,000 in the first three months of the year and 229,000 in 2015.

Then there was the labor force participation rate. In what has become a monthly ritual, skeptics suggested the 4.9 percent unemployment rate looks good only because fewer people are in the job market.

In fact, the 62.7 percent labor force participation rate, while basically flat compared with a year ago, is near the low point of the last 40 years. Many people, it would seem, have simply given up looking for a job.

Reality, however, is more complicated than that. To be sure, the labor force participation rate plunged as the recession took hold and has not rebounded to its previous level. But the downward trend started well before that.

A chief reason, as a number of experts have explained, is demographics. The baby boomers are reaching retirement age, and sizable numbers are exiting the labor force.

Narrow the labor force measurement to civilians 25 to 54 years old, and a different picture emerges. The participation rate has been relatively steady since the late 1980s and it is significantly higher than in years prior to that.

The Rochester region mirrors the nation. In May, the local jobless rate fell to 4.2 percent, a level for the month not seen since 2007. At the same time, both the labor force and number of employed persons have shrunk over the last nine years, as the region’s population has aged.

Given this demographic shift, the economic recovery here and across the U.S. does not look so shabby. But the numbers do contain a warning: a lower participation rate could be a real obstacle to faster growth, if employers can’t find the people they need.

7/22/2016 (c) 2016 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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