Friday, August 7, 2009

Is the Labor Force Shrinking?

Following on the previous post, I can't help but think it is bad news that 637K people dropped out of the labor force in one month. If they had stayed in it during July and been counted as unemployed, the unemployment rate would have actually been 9.8% insted of 9.4%. This variable goes up and down from month to month. When people are encouraged and out looking it tends to go up. When they're not, they drop out. Plus, the third paragraph of the BLS release says that 584K additional people in July are now considered long-term unemployed. That's a massive number by the way.

Suppose all 637K people re-enter the labor force and come back and don't find work during August and there is another 300K job losses. The 637K plus the 300K assumed new job losses would be added to the existing 14,462K. This would amount to 15,399K unemployed persons and an unemployment rate of exactly 10% assuming the total civilian labor force stays constant at 154,504K people. So how does a massive rise in this number portend a recovery?

Call it a mystery and get Sherlock Holmes on the case because I want to know why so many people are no longer counted as being in the labor force? Did these people drop off the face off the earth? I know we're looking for good news. But geesh! Have we all lost our minds?

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