A drop in the unemployment rate from 5.8 percent in November to 5.6 percent in December could mean one of two things. It could mean that more people are getting jobs. Or, it could mean that people have given up looking and left the labor force. These days, the truth lies somewhere in between. Looking at December’s jobs report, however, it’s pretty clear that the primary reason the unemployment rate fell to 5.6 percent is a declining labor force.

Over 70 percent of the decline in the number of unemployed people between November and December was due to a drop in the labor force. The labor force participation rate fell from 62.9 percent to 62.7 percent between November and December. And, the employment-to-population ratio (the share of the population working) held constant at 59.2 percent.

Even with the decline in labor force participation, the unemployment rate in December 2014 remains elevated compared to 2007, which had an average rate of 4.6 percent. The table below compares the unemployment rates between today and 2007 across various demographic groups.

You can see that no one demographic group has been spared by the weak economy. Compared to 2007, unemployment is elevated for groups that typically face higher-than-average joblessness, such as people of color, younger workers, and those with only a high school degree. But unemployment is disproportionately higher (i.e. the ratio between the years is larger) for those with a college degree or working in “Management, professional, and related occupations.”

The elevated unemployment rate, taken with the sheer number of workers sidelined because of weak job opportunities, translates into a relatively slack labor market. If the labor market were tightening, we would see that reflected in nominal wage growth. But wages in December 2014 were as sluggish as they’ve been in the recovery as a whole—they increased only 1.7 percent over year.

It’s too early to analyze wage data for the entire year by demographic characteristics—check back with me in a few weeks for that analysis—but, if we look at the first half of 2014, we see that wages fell for almost every decile and every education category. See the chart below for the education story. If there’s no wage pressure among workers at the highest level of education and at the highest wages, there’s really going to be no pressure at the bottom.

Only through policy (such as an increase in the minimum wage) will wages increase in lieu of a stronger recovery. And, those increases will surely lead to better labor market outcomes for those at the low end of the wage distribution. As the labor market continues to add more jobs, more people will eventually get pulled back into the labor market. As that happens and more and more workers get jobs, then we may see wage growth. We will continue tracking that progress, but it’s clear, at least for now, that there is absolutely no inflationary pressure from wage growth. The Federal Reserve need not set deadlines or targets for raising rates. In fact, the Fed should wait months if not years before raising rates if we don’t see solid signs of decent wage growth. Premature action by the Fed would come at the expense of a full recovery.

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