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Labor Force Drop Had Pre-Recession Roots

Fri, 07/18/2014 - 2:30pm
Jim Kuhnhenn, Associated Press

WASHINGTON (AP) -- Declaring the Great Recession only partly to blame, White House economists say the increasing number of Americans dropping out of the labor force dampens economic growth and demands policy changes that create more job opportunities and add workers.

In a new report released Thursday, President Barack Obama's Council of Economic Advisers point to an aging population as the biggest single factor contributing to the lowest participation rate in 36 years. The report also says the elevated unemployment rate, which climbed to 10 percent in 2009, drove workers to put off looking for a job.

But they say other factors might be at play, including long-term declining rates for 24- to 54-year-old men and a more recent decline in the participation in the labor force by women.

The decline in the labor force — currently at 62.8 percent compared to a high of 67.3 percent in 2000 — has been one of the more baffling indicators to emerge during the economic recovery, clouding an otherwise improving jobs picture. The participation rate has declined even as companies have increased hiring and as the unemployment rate has declined.

Obama critics have often pointed to the number of Americans dropping out of the labor force as evidence that his economic policies aren't working.

But Jason Furman, chairman of the Council of Economic Advisers, said a voluntarily retiring aging population and the trends showing a decline in participation by some workers precede the Great Recession. Indeed, some economists were even predicting the current level of participation before the recession and the financial crisis hit in 2008.

"The participation rate is one of the most puzzling and misunderstood aspects of the economy," Furman said Thursday.

"But the declining participation rate also subtracts from potential economic growth and exacerbates our future fiscal challenges," he said.

The report presented the White House with an opportunity to push for its economic agenda.

Furman said the most effective response to a declining labor participation rate would be a comprehensive overhaul of immigration laws that would increase the size of the labor force. The Congressional Budget Office has estimated that an immigration overhaul that passed in the Democratic-controlled Senate last year would add 6 million workers to the labor force by 2023. Republican leaders in the GOP-controlled House have said they do not intend to vote on an immigration bill this year.

Furman said other Obama pushed measures would help, including an increase in the minimum wage and a long-term, $302 billion transportation infrastructure plan.

The report comes just a day after Federal Reserve Chair Janet Yellen testified before Congress that the labor force participation appears weaker than should be expected.

"Demographics and an aging population is driving and should be expected to drive the labor force participation rate down," she told the House Financial Services Committee. "So the question is, has labor force participation fallen more than would be expected based on demographics? And my personal judgment is yes, it's fallen somewhat more than that."

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