The Breakdown | Explaining Southern California's economy
Business & Economy

Why have Americans stopped working?

The labor participation rate has declined dramatically since the Great Recession. But after the 2001 recession, it never really recovered.
The labor participation rate has declined dramatically since the Great Recession. But after the 2001 recession, it never really recovered.
Federal Reserve

Thanks to James Pethokoukis for drawing my attention to the chart above. It shows the civilian labor force participation rate from 2000-present. The labor participation rate has been a sort of "third number" when U.S. jobs data comes out each month. The other two are the headline unemployment rate — now at 8.1 percent — and the level of U.S. economic growth, measured as GDP, which came in at only 1.3 percent for the second quarter. That's troublingly low.

And what about labor participation? It's at levels not seen since the early 1980s. A couple of factors are contributing. First, unemployment is high and job creation is weak; this means that workers are out of the labor force, either drawing or having exhausted unemployment benefits. Second, people are retiring as the first wave of the Baby Boom collects its gold watch. 

As you can see from the chart, labor force participation has fallen off a cliff since the 2008 recession. However, bear in mind that it also fell after the 2001 recession — and never recovered. In fact, it continued a downward trend until 2005, at which point it climbed back up a bit, then fell a bit, before slamming into the Financial Crisis.

So Americans haven't just started giving up on working. They've been doing it for more than a decade.

The upward trend originally began in the mid-1960s and continued more or less steadily for decades, peaking after the recession of the early 1990s. Women entering the workforce over a generation or so contributed to this — bringing more than half the population, previous not officially working, into the workforce will do that. 

In California, we should be paying extra-close attention to this trend, because we're both in the throes of it — and defying it, somewhat. Our unemployment rate, at 10.6 percent, is far higher than the nation's. But we're adding jobs a faster clip than the U.S., and we have have a real job magnet in the tech industry. So as a state we could buck the national trend. Eventually.

At the Huffington Post last month, Mark Gongloff took a shot at explaining why the trend of Americans giving up on work is hard to explain.

There could be good reasons, such as returning to school to acquire new skills.

There could be bad reasons, such as despair.

And there could be good-bad reasons, such as people retiring early because they just don't think the economy has anything for them anymore.

We can be sure of one thing. Few economists expect the U.S. economy to grow at a pace greater than 5 percent in 2013. So the question of why Americans have stopped working could be with us for a while.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.