Unemployment Rate Projections Hinge on This Number

Author: Notre Dame ESTEEM

The unemployment rate is a crucial statistic for college graduates. This one number can mean the difference between starting a job search and applying to graduate school. However, recent analysis has revealed that the unemployment rate figures might fail to capture a critical element, which has direct influence over the job market for college grads.

Labor Force Participation Rate (LFPR)

The unemployment rate dropped to 6.6% in January, down by .4% in a matter of months. That is cause for some optimism for college grads because more employers will need inexperienced workers to meet their workflows. However, economists such as Laura Tyson, a former chair of the US President's Council of Economic Advisers, suspect that the effective unemployment rate could be worse.

The unemployment rate measures the total labor force against the number of individuals currently employed, or fully engaged. Retirees, the disabled, and full-time students are not tallied up with the total labor force statistic.

The Labor Force Participation Rate (LFPR) is the percentage of Americans who comprise the workforce over the total population. As we mentioned in our [last blog - LINK to Blog 1], the LFPR has dropped from 66% to 62.8% since 2007, which might suggest that many individuals who could work might have exited the workforce by choice. Some of these might re-enter the workforce as soon as conditions improve.

Explaining the Drop in LFPR: How Many Could Rejoin the Workforce?

Statisticians and economists have tried to glean this figure from the data by accounting for the groups, which have left and cannot return. Deduction leaves the groups who have left and might return to the workplace.

The Baby Boomers are one large grouping, which would have decreased the LFPR whether the recession had occurred or not. These professionals are beginning to reach retirement age and are leaving the workforce for good. Analysts differ on exactly how much of the decrease has been attributable to retirements; however, the Chicago Fed and Barclays estimate 25% and 50%, respectively.

The real cause of concern stems from people who are aged between 25 and 54. In 2008, 80% of 25-54 year-olds were employed. After a slight rise last year, 76% of this age group is currently employed.