Wall Street Journal (12/29/14) Josh Zumbrun
Despite healthy job gains of late, the U.S. economy is still not luring back many of the millions who dropped out of the labor market during the down times. U.S. Federal Reserve chairman Janet Yellen has cited the low labor-force participation rate to justify the Fed’s long easy-money quest to stimulate the economy and increase wages. A more buoyant economy and tightening labor market were supposed to draw in those now sitting on the margins. But the probability of a worker re-entering the labor force continues to slump. Over the past three months, an average of 6.8% of those outside the labor force either found a job or began looking for one, down from more than 8% in 2010.
Some decline in the labor force was expected as the massive baby-boom generation born after World War II began turning 60 and retiring by the millions, in the mid-2000s. But the drop in boomer participation is not the sole reason behind the decline. Another big explanation could be that people who drop out amid a bad economy cannot easily be enticed back. Economists call this labor-market scarring. People find other ways to get through life by relying on friends and family, going on disability, or retiring early. Determining the cause and finding solutions for depressed participation has important implications, as a smaller workforce presents a drag to growth.
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