The July unemployment rate held steady at 9.5% in July, but the primary reason it did not rise is that the labor force shrank by 181,000 workers. This points to the backlog of “missing workers,” who dropped out of, or never entered the labor force during the downturn. In the last three months, the labor force has declined by 1.2 million workers, reversing much of the 1.7 million increase in the labor force in the first four months of the year. This clearly shows how the forward momentum from earlier this year has largely evaporated.
To get an idea of the size of the current backlog of missing workers, consider the following: The labor force should have increased by around 3.6 million workers between December 2007 and July 2010, given that the working-age population grew over this period. Instead the size of the labor force actually decreased by 309,000. This means that the pool of “missing workers” now numbers around 3.9 million, none of whom are reflected in the official unemployment count. As these workers enter or re-enter the labor force in search of work, this will contribute to keeping the unemployment rate high. –From Heidi Shierholz’ July jobs report.