Jobless rate has fallen because of dropouts

The big drop in the unemployment rate in recent months to 8.3 percent from double-digit rates during the recession came at a fortunate time for President Obama, but economists say it as much because of young people dropping out of the labor market as it is the result of businesses adding jobs.

The steep drop in unemployment only months before the election is similar to a big drop from double-digit levels that boosted President Reagan when he sought re-election in 1984 after a deep, double-dip recession during his first term.

Reagan campaigned amid a revival of economic growth to robust rates of more than 7 percent and the re-employment of thousands of laid-off factory workers. Mr. Obama is running on a far more subdued recovery with growth averaging about 2 percent and unexciting job gains of about 130,000 a month.

“A dip in the unemployment rate as we head into an election year has to be good news for President Obama,” said Claire Moore, a blogger at High Beam Business. “On the face of it, a lower unemployment rate sounds good,” but the recent declines reflect not only an uptick in job growth but also the exit of thousands of potential young workers from the labor force.

When people stop looking for work, they are no longer counted as part of the labor force or “unemployed.” Evidence suggests that many of the young dropouts, who proved to be instrumental in Mr. Obama’s election in 2008, are continuing their schooling to avoid the tough job market and to increase their skills and chances of eventually securing employment.

“People stop looking for work for various reasons, which might include taking an early retirement, going back to school, or deciding to be a full-time, stay-at-home parent,” Ms. Moore said.

The president isn’t going to make “political hay” when that causes a decline in unemployment, she said, because “if they all decided to start looking for work tomorrow, the jobless rate would skyrocket again.”

While a growing number of baby boomers are also stopping work as they retire, the exit from the workforce has been most the pronounced among teenagers and the so-called millennials, now in their 20s.

The percentage of workers ages 16 to 19 has dropped 4.3 percentage points to 34.2 percent since the end of the recession in 2010, while the share of people between 20 and 24 working has declined 1.6 percentage points to 71.7 percent, according to the Bureau of Labor Statistics.

Participation in the workforce was on the decline among those groups even before the recession, but it accelerated when millions of jobs disappeared.

“This probably has to do with younger workers willfully opting out of the job search process, given today’s tough job market,” said Mark Vitner, an economist with Wells Fargo. “Young people tend to have less financial responsibilities, such as mortgages and food expenses,” than their parents, the baby boomers, who have continued to work at higher-than-usual rates, he said.

While the problems associated with youth unemployment and idleness may dog Mr. Obama to some extent, including by helping to fuel the Occupy protest movement in the nation’s cities, the trend is not entirely bad for the economy or the president’s re-election prospects, analysts said.

“Some of the recent decline in the participation rate for the 20-to-24 age group is probably related to the recession,” said Bill McBride, author of the Calculated Risk economic blog. “But probably the main reason for the decline is that more people are pursuing higher education.”

Several studies have found that the decline in work among young people closely mirrors a surge in college enrollments in recent years. Bureau of Labor Statistics surveys show that the greater a person’s education and training, the better their success at getting good jobs and higher pay.

With that in mind, Mr. Obama has set goals for achieving a better-educated workforce and is encouraging young people to stay in high school and go to college. Among other initiatives, he is virtually guaranteeing government financing for anyone who wants to get a higher education.

“In the long run, more education is a positive for the economy,” Mr. McBride said, “although I am concerned about the surge in student loans.”

While some economists are questioning whether young people are hurting their careers and earnings prospects by shunning the job market, Mr. McBride said such worries may be misplaced because youngsters in school are generally increasing their employability.

“The kids are all right” and may be more likely to succeed when they decide to get jobs, he said.

While staying in school may simply postpone a reckoning with unemployment for some people, the administration appears to be mostly pleased with the trend.

“The historically difficult labor market that the recession created spurred even more youths to shift their focus from searching for a job to getting an education,” said Mark Doms, chief economist at the U.S. Commerce Department.

“For youths and the economy as a whole, there is an important upside to this trend. Education is vital to reach the president’s goal that the U.S. have the highest college graduation rate in the world with 5 million additional graduates by 2020,” he said.

“Reaching this objective means some youths will remain out of the labor force for a few additional years as they invest in developing the skills that will make them, and our country, more productive in the long run,” he said.

Some economists take a dimmer view of today’s workforce dropouts.

Brian Holte, an economist at the Federal Reserve Bank of Minneapolis, said young people staying in school likely account for only 10 percent to 20 percent of the drop in work participation nationwide. Early retirements by baby boomers account for another 10 percent to 20 percent, he said, but the vast majority of work dropouts are people who simply can’t find jobs and have quit looking.

“However, these factors stack up, the improvement in unemployment is largely the work of declining participation rates and, unfortunately, not job growth,” Mr. Holte said.