Economic Snapshot | Budget, Taxes, and Public Investment

Decline in labor force may mask higher unemployment rate

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

Snapshot for June 27, 2001.

Decline in labor force may mask higher unemployment rate
As the economy has slowed over the past few months, the civilian labor force (the number of persons employed and unemployed) has contracted significantly. This shrinkage may be the result of some people giving up on seeking work because of a perceived decline in employment opportunities. The figure below shows both the actual trend in labor force participation and what the trend would look like if the labor force had continued to grow at the same rate as it had over the rest of the recovery (1.2% per year). The gap between these two trends represents the number of persons who may have left the labor force due to the slowdown.

Labor force size and the economic slowdown

Had economic growth not faltered over the past few months, the labor force would likely have grown by about 570,000. If these workers couldn’t find jobs and ended up being counted as unemployed, the unemployment rate in May would be 4.7% instead of the reported 4.4%.

This week’s Snapshot by EPI economist Jared Bernstein.

Check out the archive for past Economic Snapshots.