Economic Snapshot | Retirement

Unemployment drop masks labor market woes

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for February 20, 2002.

Unemployment drop masks labor market woes
The decline in the unemployment rate from 5.8% to 5.6% in January was driven by a shrinkage in the size of the labor force and not by unemployed workers finding jobs. In fact, the employment rate continued to fall in January, as it has throughout the recession. This employment-to-population ratio – a broad measure of employers’ demand for workers – dropped 0.4 percentage points to its lowest level since the summer of 1994. Since its peak in April 2000, the employment rate has fallen 2.2 percentage points, an historically large drop.

Employment rate, April 2000 - January 2002

A decline in the employment rate can be much more indicative of the health of the labor market than the unemployment rate, which only counts those people actually seeking work. When unemployment and employment rates both fall, it implies that potential job seekers have given up looking for work and simply left the labor market. Last month, nearly one million people left the labor force, the largest decline since June 1981. While this statistic tends to be somewhat erratic on a monthly basis, the decline is evidence of current labor market weakness.

This week’s Snapshot by EPI economist Jared Bernstein.

Check out the archive for past Economic Snapshots.

See related work on Retirement

See more work by Jared Bernstein