Friday’s report from the February jobs report is good news for the American economy: The country added 235,000 jobs last month, unemployment dropped to 4.7 percent, and wages grew 2.8 percent over the past year. But lurking within the report is a far more important trend, one that has implications for everything from the Federal Reserve’s decision to raise its benchmark interest rate next week to the effectiveness of infrastructure spending: The decline in the percentage of workers in the labor market may have finally stopped.
favored by Barack Obama’s economists) to the expanding number of people collecting disability insurance (favored by the right).
But all agree that it is one of the most pressing challenges facing the nation. Economists refer to it as a “structural” problem, meaning that it is independent of the current state of the economy. That differs from the “cyclical” problems caused by current economic conditions. Unemployed construction workers are a cyclical problem, created by an economic downturn and solved by a recovery. Automation and globalization are structural problems; an improving economy won’t address those issues.
The decline in labor force participation, especially among men, has been structural. An improving economy hasn’t been enough to reverse the decline — at least, until now. Over the past three years, labor force participation has stopped declining and held steady at about 63 percent. That may sound like non-news. But it’s actually a kind of positive: With baby boomers retiring, that figure would be expected to decline about 0.3 percentage point a year. So the fact that labor force participation isn’t declining— and in fact even rose a bit this month — is a sign of real progress. That is even true for working-age men. Their labor force participation has plateaued at about 88 percent, far below its level of 97 percent in the 1950s — or even its level of 91 percent before the financial crisis. But it still represents a real improvement.
This improvement appears in another important statistic: the percentage of Americans aged 25-54 who are employed. This is the prime-age population, largely past the age of school and before retirement. In February, the employment rate of this population hit its highest level in more than eight years.
A word of caution: We’ve seen this story before. Both in the late 1990s and the mid-2000s, labor force participation plateaued and the prime-age employment rate increased. But the bursting of the dot-com bubble and the financial crisis cut those recoveries short. Labor force participation, both overall and for men, stopped declining but never really increased. The prime-age employment rate never came close to its previous peak. In other words, those recoveries helped stop the declines, but the long-term structural challenges remained.
The economy, then, is at a crossroads. The near-term challenges, even if not totally resolved, are looking bright. There just aren’t that many people left unemployed, and wage growth is picking up, albeit slowly. Now, the question is whether the recovery can help reverse the decades-long structural trend of fewer Americans joining the labor market in the first place. Donald Trump didn’t inherit anything like the “mess” he so often claims — in fact he’s inheriting a slow but steady 77 months of job growth — but if he wants to take on a genuine economic challenge that America needs to fix, this is one he could try to make headway on.