With the American Economy Recovering, Is Now the Right Time to Rejoin the Workforce?

Author: Notre Dame ESTEEM

Anyone who graduated from an undergraduate program after 2008 was forced to decide between more education or throwing themselves on the job market and wishing for the best. It was not a difficult decision.

Students who are graduating now - even with degrees that hold more cache among employers - like mathematics, biology and engineering - face a fairly bleak market. Although many signs point to improvement, recent college grads are not likely to see significantly improved prospects in the near term.

The GDP rose in 2013 to an annual rate of 2.7%. Consumer spending and investment spending have both relaxed accordingly, and the real estate market is on the upswing. Unemployment is down. All of these factors might tilt the dial in favor of joining the workforce.

However, employment prospects for new graduates should not be thrown into the mix as you might think, or hope.  Unemployment remains well over 6%, and unseen factors could slow down further improvement.

Labor Force Participation Rate (LFPR) - Slack in the Unemployment Line

Laura Tyson, former chair of the U.S. President’s Council of Economic Advisors, points out that there is currently plenty of slack in the labor force, which is measured by the Labor-Force Participation Rate (LFPR).

Prior to the recession, LFPR was 66%, meaning that two-thirds of Americans were either working or actively seeking work. That figure dropped over 4% after the recession and remains at 62.8% today. The downshifted LFPR has effectively decreased the unemployment rate, and if LFPR were equal to what it was in 2007, unemployment would be over 9%.

The slack has led to falling real wages for most workers, and its continued presence has led to Tyson’s conclusion that “stronger growth in 2014 and tightening labor markets should lead to healthier wage gains for the 70% of the workforce whose real wages have not yet returned to their pre-recession level.” Tyson’s argument sends a clear warning to recent college graduates.

The economic recovery is underway, but job creation for new graduates might continue to be lukewarm in 2014.  

Read more of Tyson’s comments on Project Syndicate.