The closer we look at the “recovery”, the weaker it looks. Last week we reported that most of the decrease in the ranks of the “unemployed” amounts to people leaving the workforce rather than new jobs being created. This week the WSJ notes that the longer people stay out of the labor force, the less likely they are to obtain good jobs in the future. This long-standing theory has been borne out by the first four years of the recovery: the recently employed have made considerable progress while the long-term unemployed are no better off than they were in 2008. Given the sharp decline in labor force participation during the recovery, this affects a considerable number of people. The situation is so bad that some economists are beginning to question whether these people will ever return to the labor force at all:
For economists, the key question is how many of the labor-force dropouts will return when the economy eventually rebounds more strongly. If most of the dropouts are simply waiting for better times, then the labor market is significantly worse than the 7.4% unemployment rate would indicate. That, advocates of more government stimulus argue, means the Federal Reserve should keep trying to boost the economy to put the jobless back to work.But if most of the dropouts are gone for good, then no amount of stimulus is likely to bring workers back. A permanently smaller workforce would mean it takes fewer jobs than in the past to bring down unemployment, but it also means the economy’s underlying growth rate has slowed.
What’s especially troubling about this is that these losses have fallen especially hard on the young. The unemployment rate for the 16-24 age group is stuck firmly in the double digits, compared with 5 percent for adults over 55. The data looks even worse when viewed alongside the labor force participation rate, which has fallen most sharply in the under-25 set despite increasing in the over-55 group. It’s not entirely clear what’s causing this, but it’s obvious that it is the young who will pay the highest price for the years spent out of the labor force.