In addition to missing the story about the productivity slump now reaching the three year mark, news reporting on yesterday's job data seems to have largely missed the story on sagging employment rates. While the unemployment rate stands at a relatively low 4.5 percent, the employment rate, the percentage of the population with jobs, has been inching lower. This is not a demographic story. The declining employment rate [EPOP] is being driven by prime age workers. The employment rate for workers ages 25 to 54, has fallen from 80.3 percent in January to 80.0 percent in June. Because these data are erratic, one month's numbers should never be regarded too seriously, but it was also 80.0 percent in May and 79.9 percent in April. This seems to be a real drop. At present, the the EPOP for prime age workers is down 1.8 percentage points from its peak of 81.8 in February of 2000. By comparison, it is only 1.3 pp above its trough of 78.7 percent in March of 2004. This drop is being driven primarily by workers ages 35-44. Their EPOP has fallen from 81.5 percent in January to 80.6 percent in June. This is 2.1 pp below the peak of 82.7 percent in Jan-Feb of 2000 and 1.2 pp above the trough of 79.4 percent in July of 2003. It is very difficult to think of any reason why hundreds of thousands of prime age workers (both men and women, the declines are roughly equal) would suddenly drop out of the labor market, other than limited job opportunities. While this situation is not disastrous, the data on EPOPS is not consistent with a strong labor market.
--Dean Baker
