How Healthy Is the U.S. Labor Market?

jobs

The elephant in the room during a typical diagnosis of the U.S. economy is the labor market. At 7.6 percent, the headline unemployment rate has come down 2.4 percent since hitting a post-recession high of 10 percent in October 2010. This decline has been cited as both an improvement of conditions and misleading about reality.

The problem with the headline unemployment rate is that discouraged workers who are not actively looking for jobs are not counted as unemployed, though they are without jobs. With this in mind, it’s worth pointing out that the labor force participation rate, at 63.4 percent in May, has come down 1 percent since October 2010 and 2.6 percent since October 2008.

There are various contributing factors to this, but many economists argue that the reduction is largely because of discouraged workers abandoning the search for a job. This can put superficial downward pressure on the headline unemployment rate.