Unemployed Still Far More Likely to Drop Out Than Find a Job

While today’s jobs numbers show the unemployment rate has gone down, don’t call it a recovery just yet. Less jobs were created than expected — it’s not that more people are finding work, it’s that they’re dropping out of the labor force altogether.

employ_chart_jan_11003

The percentage of unemployed who will drop out of the labor force is increasing, gaining over those who will find a job. This is unique in the post-World War II economy — and only getting worse.

leaving_unemployment_1

More and more will fall into this hole as the 99ers lose their unemployment benefits. Worse, while President Obama talks of wanting to “win the future,” it looks bleak for those who experience such long spells of unemployment, which harms their financial outlook. The longer they spend without work, the more they are likely to stay permanently out of the workforce. And we lose too, as we miss out on their productivity (and of course the taxes they would be spending if they brought in regular paychecks).

The graph below charts the difference between the chance of an unemployed person finding a job and an unemployed person dropping out of the labor force. As Arjun Jayadev and I showed in our paper “The Stagnating Labor Market,” this number hasn’t ever been negative, going back to the first available data in the 1960s.

unemployed_dropping_out

Work next week will take a deeper look into the current fate of the underemployed, those working part-time for economic reasons. The number has declined but is still very high. These will likely be the first workers to recover, and if they are just starting to find full-time work it points to an extremely long recovery without further government intervention.

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12 Responses to Unemployed Still Far More Likely to Drop Out Than Find a Job

  1. Bill Mill says:

    > This is unique in the post-World War II economy

    evidence?

  2. G. McFadden says:

    I really don’t like the term “drop out of the labor force”. This is highly perceived by many to mean that people whose unemployment benefits have run out have personally chosen NOT to work.
    How does ones misfortune suddenly turn into that of laziness, lack of aggression and actually attracted to the lifestyle offered by public aid.
    You have to remember, these people have already learned through their years of hard work that their working life is extremely lavish in comparison to living on unemployment, public aid and food stamps. Common sense should tell us all these people would much rather work than to rely on the system.
    People look for excuses rather than reason to guide them to senseless conclusions that these are just lazy people.
    So what kinds of people would rather not reason, but rather come up with negative reasons as to why these people are not working?
    These would be people who truly have not a care in the world about anyone else other than themselves or their own Families. These are selfish people who would rather not be bothered by these people and just rather them go away. Is THAT America? American?
    There is no such thing as sitting back and enjoying your life under those circumstances. Life on the system is not characteristic of laziness. Laziness would rather guide one into a job as working is much easier and less stressful than collecting off the system.
    There are those of course who have grown up in environments of poverty and know no other. That of course is a problem. But today we are talking millions of people who have ALWAYS worked and contributed to society and are more than worthy of our dedication.
    We need to be by their side during these times and figure out how we can get the opportunities to these people.
    We should all know that we cannot count on most of the giant manufacturing concerns who have determined the American worker is not worth the investment and cost too much. These corporations have turned their backs on America and its people by outsourcing for the sole purpose of increasing those quarterly profits.
    MAYBE……. it is time for the American worker to give up working for the elite and strive to implement our own entrepreneurial agendas? A new common goal not governed by pure profit, but rather a love for Country and one another? Can we l’il guys compete with the big guys? I think to say “no way” is NOT characteristic of the American spirit
    Can the difference between those massive profits they are trying to achieve by sending work overseas, exploiting the low labor and environmental regulatory costs and what us little guys NEED to change our lives be an open window? Has the back door been left open?
    Let’s make sure we respect those out of work as they may very well be the very ones who transform this country.
    Those companies who have turned their backs on America, its people and its economic foundation will NEVER prioritize U.S.!!!
    But WE can change that! WE can be our own new engine for transformation and I DO believe in U.S.!!! Given a massive conceptual transformation by the people, WE can topple the elite!!!!
    Let’s make sure we change this whole idea of “Dropping out of the labor force” OR at least make sure EVERYONE knows exactly what it means.

  3. Bob Dobbs says:

    Is there any way to account for older unemployed workers going from looking for work to leaving the labor force as they take Social Security? Not that 62 year olds “retiring” on reduced benefits because they haven’t been able to find a job for years is a good thing, but I’m just curious as to the extent to which the increase is being driven by it.

  4. The US employment to population ratio continued to plunge in January 2011 — more at:

    http://wjmc.blogspot.com/2011/02/us-employment-to-population-ratio.html

    Many economists believe that reporting the number employed as a percentage of the civilian population provides a more accurate description of the current state of employment than conjecturing the number of “unemployed” in a population. The US employment to population ratio reached a historical peak of 64.4% on an annual basis in 2000.

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  6. eric says:

    Thank you! This is a helpful corrective to the blindly hopeful dithering at places like the NYT. I do agree with what Mr. McFadden said in the comments, though–saying “dropped out of the labor force” is probably not very precise, and implies laziness when the reality is probably much more miserable.

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  9. Some Guy says:

    The total number of OASDI beneficiaries increased from 49.9 million in December 2007 to 54 million in December 2010. Without even taking into account that beneficiaries are dying, that’s 4 million more recipients over three years, most of whom have dropped out of the labor force.

    Granted, most, but not all, of the 4 million in increase in SS beneficiaries since 12/2007 have dropped out of the labor force. Some widow(er)s, spouses and children were never in the labor force to begin with and some old age beneficiaries are still working. Still, especially when you account for deaths, it suggests that some significant percentage of the 6.3 million drop outs aren’t coming back.

    Since these beneficiaries are seeing smaller checks than they would have had they continued to work, I don’t see the increase in Social Security beneficiaries as an unalloyed good thing. It’s just that we shouldn’t imagine the situation as being quite as bleak as your third paragraph suggests.

  10. yorksranter says:

    Data visualisation suggestion: this graphic would be really fantastic if the arrows were scaled by the size of the flows they represent.

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  12. First, to say that people who stop looking for work are no longer considered “unemployed” is a terrible use of language. They ARE unemployed. They’ve given up hope of finding a job. And since looking for a job is a prerequisite for collecting unemployment, it seems as if that meager sum will no longer be available to them either. So what are those who have “dropped out of the labor force” living on? Or is the population of those who are homeless and destitute on the rise in America? Consider looking into that number and see if it correlates to the numbers dropped from the roster of “unemployed” because they have stopped looking.

    Second, where are the areas of significant job growth? Are there companies today that are really struggling to find employees? Doesn’t seem like it, but if that’s the case, then yes, people ARE making a choice not to work. However, the story seems to be that companies are boosting productivity with less workers.

    The economy OUTSIDE of Wall Street needs its own Henry Paulson, someone who recognizes that the “wheels are coming off” and acts decisively to stop the crash. Paulson’s interventions worked for the financial sector. But the economy outside of Wall Street has collapsed and there is no one acting with the sense of urgency Paulson used to help save the sector he knew so well.

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