The most recent jobs report indicates that the labor participation rate in the United States fell to 62.6% in May of 2016, close to 35 year lows. In absolute terms, however, labor participation hit an all-time low with approximately 94.7 million individuals no longer seeking work. Adding unemployed workers to that number (who are seeking work), the number of out of work Americans grows to more than 102 million. These extreme levels were reached once before, in October of 2015, and had rebounded, only to fall back last month.

Labor Participation Not Seen in Headline Unemployment Numbers

The headline number for unemployment for the same period fell to 4.7%, a low not seen since 2007 before the financial crisis. However, this headline unemployment figure, called U-3 unemployment, does not account for those frustrated workers who have either taken on temporary work while they search for full-time jobs, or those who have given up completely and stopped looking altogether. In other words, because so many people left the job force last month, it actually made the unemployment rate look better since those individuals are no longer counted as technically "unemployed." If we consider the more inclusive U-6 unemployment rate which accounts for the "total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force," the figure stands at 9.7%. (For more, see: The True Unemployment Rate: U6 Vs. U3.)

The labor participation rate is the measure of the active portion of an economy's labor force, referring specifically to the number of individuals who are either employed or are actively looking for work. Those in the population who are discouraged and no longer seeking work are not counted, as well as people who are either too young to work (under 18 years old) or are retired. Theoretically if everybody decided to quit their jobs and not look for another, the unemployment rate could be zero! (For more, see: What is the key difference between the participation rate and the unemployment rate?)

 

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/05/31/part%20rate.jpg

Source: BLS & ZeroHedge

The Bottom Line

The number of people who have dropped out of the labor force in the United States reached an all time high in May, accounting for 37.4% of the population. This has actually had a positive effect on the headline unemployment rate, bringing it down to 4.7%, a low not seen since before the financial crisis. The unemployment rate, however, is misleading as it does not count the record number of people who have given up looking for work due to an economy that simply may simply have no work to give them.

 

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