Job Market's Vanishing Act

From David Wessel at the WSJ.com:

Where have all the workers gone?

In the past two years, the number of people in the U.S. who are older than 16 (and not in the military or prison) has grown by 5.4 million. The number of people working or looking for work hasn't grown at all.

Is this because members of the big baby-boom generation are now beginning to retire? Have a lot of people dropped out of the workforce temporarily, and are likely to return when there are more jobs to be had? Or are more of the long-term unemployed becoming the never-again employed?

The short answer is yes. But how much of each? The mystery of the missing five million is preoccupying Federal Reserve policy makers....

But the falling participation rate could signal a more worrisome dynamic:  More jobless and disheartened workers turning to disability benefits or reluctant retirement, or otherwise leaving the workforce for good.

Not only is this a waste of human potential, but it diminishes the rate at which the U.S. economy can safely grow. It also creates a growing cadre of Americans who will need the support of the working population and makes the government budget deficit worse because there will be fewer workers to pay taxes. There's no precise way to measure the size of this contingent. Official estimates of "discouraged workers" understate the problem; they count only those who say they want to work and have looked for a job in the past 12 months.

One thing is clear: The longer people remain out of work, the more risk they will fall out of the workforce altogether.

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Link: http://online.wsj.com/article/SB10001424052702303879604577407864232528118.html