U.S. unemployment decrease reflects more workforce dropouts

["...we've seen over the course of the recovery millions of people just giving up hope, dropping out." The unemployment rate is designed in such a way that, if more people give up looking for work and drop out of the labour force, it looks like unemployment is decreasing. *RON*]

Sudeep Reddy, PBS News Hour, 6 September 6 2014

According to Friday's jobs report, the unemployment rate dropped from 6.2 percent to 6.1 percent. However, the number of Americans dropping out of the workforce rose. Sudeep Reddy, an economics editor at the Wall Street Journal joins Hari Sreenivasan from Washington to talk about the long-term effects these exits may have on the nation's economy.

HARI SREENIVASAN: We wanted to follow up tonight on yesterday’s unemployment report.

The government reported that 142,000 jobs were created last month, well below most expectations.

Even so, the unemployment rate dropped from 6.2 percent to 6.1 percent, in large part, because what’s known as the participation rate fell.

In other words, even more Americans dropped out of the workforce. For more about all this, we’re joined from Washington by Sudeep Reddy, an economics editor at the Wall Street Journal.

So, one of the articles in the Journal said that 60,000 people dropped out of the labor force last month.

Put that into perspective for us.

SUDEEP REDDY: That’s right, we’ve seen over the course of the recovery millions of people just giving up hope, dropping out.

The vast majority of people appear to be dropping out just because they can’t find good jobs and it’s not worth staying in.

So to see that many pull out. Right now the labor force participation rate is right around 63 percent.

That means there are millions of people who were in the labor force before, before the recession started in 2007, who aren’t coming back in, even when we see improvement in the overall economy and improvement in the labor market.

HARI SREENIVASAN: So what are some of the long-term consequences of this low participation rate?

SUDEEP REDDY: For individuals they are really quite tragic.

It means that if you are not in the labor force, in a job that suits your skills, that means you’re going to spend decades down the line probably earning less than you would have earned otherwise.

Because you start out at a lower base, you’re not getting the kinds of increases you would expect in pay, and in job quality.

That could stunt you and there is research that shows that that could stunt your children as well.

That’s why it is a big risk that way. It hurts the overall economy in much broader ways. An economy relies on people working at their full potential.

It relies on people being particularly educated, people being involved in the labor force, looking for good opportunities, looking for good jobs.

And you see in plenty of economies around the world, when you don’t have people working at their full potential it’s a degradation of the economy that reduces the potential to grow and the potential for job creation and for entrepreneurship, for all the things that you would expect to see in a vibrant, thriving economy.

HARI SREENIVASAN: Alright and about those who are working, are their wages rising?

Are they turning around and spending more?

SUDEEP REDDY: Unfortunately, their wages are not raising very much. We’re seeing a very two track economy right now.

On one hand you see the wealthiest Americans and there have been some reports this week with new data showing that the people who have been making the most gains, the top one percent to three percent, they’re doing quite well.

Partly because the stock market has been going up so strongly over the last couple of years.

Everyone else, the other 97 percent of Americans are generally seeing stagnant wages, that is why you are not seeing consumer spending take off.

You see an economy that on the surface looks like it’s improving based on all of the numbers, but the way everyone’s reacting to it, it really isn’t gaining that much traction.

HARI SREENIVASAN: Sudeep Reddy of the Wall Street Journal, thanks so much.

SUDEEP REDDY: Thank you.