Interesting piece in today's New York Times about people 'dropping out' of the labour force. The background is the drop in the participation rate - 0.9% in two years. If the 90's was all about squeezing participation, post March 2000 is , partly, about its unwinding, and I am convinced that this will eventually be seen in the productivity numbers, at least at the level of per-capita income. The US has just become a less 'productive' society. This leads to the point that 'the unemployment rate just doesn't give the same information today as it did in the 1970's. Now what we need is more, not less, information. Which brings me back to my thoughts on the need for a better metric. I have suggested participation rates, dependency ratios and age structure as the possible measure of the productive potential of an economy. Any one else got any thoughts?
Worn down by job searches that have stretched on for months, demoralized by disappointing offers or outright rejections, some unemployed people have simply stopped the search. As the nation enters a third year of difficult economic times, these unemployed — from factory workers to investment bankers — have dropped out of the labor force and entered the invisible ranks of people not counted in the unemployment rate. Some are going back to school or getting new job training. Others have chosen to stay home with young children or aging parents and to rely on their spouse's salary, at least for now. Still others are plainly waiting: living on their government benefits and hoping that the economy will get better in a while.
After working 25 years in the heat of the factory line at a steel plant here, Bill Jacobs accepted his layoff calmly last year. He thought he could find some other job working with his hands, or go back to the line once business picked up. But eight months passed, and nothing came. Not long ago, he signed up for nursing school. "There aren't any jobs, just not any," Mr. Jacobs said. "I had been waiting it out. I thought there was a strong possibility that I'd get recalled to the plant, or I'd get something else, anything that paid at least $10 an hour. But it turns out there is nothing. It's a dead-end street." Mr. Jacobs, who is 50 and raising four children on his own, said he had "absolutely never" planned to change careers. But he heard about the possibility of a government grant to pay for his schooling and decided he would prefer to spend the next two years tucked safely inside a classroom rather than continue to fight for a job in an economy he describes as "heading nowhere."
Over the last two years, the portion of Americans in the labor force — those who are either working or actively looking for work — has fallen 0.9 percentage points to 66.2 percent, the largest drop in almost 40 years. More than 74.5 million adults were considered outside of the labor force last month, up more than 4 million since March 2001, the Department of Labor says. They are people who fall outside the government's definitions of either employed or unemployed: they do not hold jobs, but they also have not gone out seeking work within the past month. This group includes retirees and parents who have been home taking care of their children for years, but the surge of dropouts suggests that the jobless rate — which was 5.8 percent last month, roughly where it has been for the past year — offers an artificially sanguine picture of the labor market, many economists say.
"People use the unemployment rate as some kind of gauge of the health of the economy," said Robert H. Topel, a professor of economics at the University of Chicago. But because of the number of people now outside of the labor force, he said, "the unemployment rate does not give you the same kind of information it did in the 1970's or 1960's." Job counselors say the trigger for the exodus is easy to see. Among those people whom the government considered unemployed, the average length of time out of work has been rising over the past two years, to 18 weeks last month from about 13 weeks two years ago. In Pittsburgh, members of one support group for unemployed people have been jobless for so long that the group recently started holding separate conversations during their regular Monday night sessions just for those who have been out of work more than six months. More than 20 people usually show up. "This is what we see today — job searches that can take 6 to 12 months," said Charlie Beck, who has directed the support group, Priority Two, for the past 20 years. "By six months, people really start to doubt themselves, and they start to doubt they're ever going to find anything. They start to doubt everything."
Uncertainty crept slowly into Mike Guido's outlook. But after the third "really good opportunity" slipped away, "it started to dawn on me," Mr. Guido said. "It just wasn't happening. It wasn't going to." By then, nine months had passed since he lost his job as an engineer developing products for a Pittsburgh company that makes industrial and safety equipment. He had held the job for nearly 20 years and made an annual salary close to $50,000. Mr. Guido asked around about academic jobs but was told his undergraduate and master's degrees would not be enough for an engineering post. At one point, a university professor told him he probably needed a doctorate. "That was kind of a pivotal moment for me," Mr. Guido said. "Right then, I started thinking, well, wait, what if I got a Ph.D?" So last fall, Mr. Guido, 48, moved his books into a study desk off the long corridors of the University of Pittsburgh's engineering building and began learning again how to pull all-nighters for classes like Advanced Elasticity.
Mr. Guido worries about money. He has a 10-year-old daughter, a mortgage in the suburbs, a shrinking retirement account and newly opened student loans for what is likely to take him three years."This is definitely not easy financially," he said. "The economy has sideswiped me." Still, Mr. Guido said he was pleased to be back in school, learning about things he cares about, and relieved to be on campus, far away from the struggle to find a job. There are others like him on campus: a soon-to-be furloughed US Airways pilot in the law school, a laid-off former sales manager seeking his M.B.A. "It's funny," Mr. Guido said, "how the moves you make because you think you have no choice can turn out to be good."
Most people dropping out of the labor force are men, the Labor Department says, and the number of black men not looking for work has risen particularly sharply. Teenagers who were drawn into the labor force in large numbers in the late 1990's have also left it recently at a rapid pace. But frustration with the economy has cut across almost every demographic group. For the first time since the 1960's, the proportion of women in the labor force has declined over an extended period. In March, 60.6 percent of women 20 and older were in the labor force, down from 61 percent in March 2001.
Source: New York Times
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