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June 17, 2004
NEW YORK - A key reason the official U.S. unemployment rate is so low is the growing number of working-age people leaving the labor force, outplacement firm Challenger, Gray & Christmas said on Thursday.
This trend was first reported exclusively by Reuters on Monday in a study of little-known figures buried inside the U.S. employment report each month.
The Bureau of Labor Statistics, which produces the data, also publishes an alternative measure that tries to capture the hidden unemployed, those who are not included in the official unemployment rate for various statistical reasons, Reuters reported.
That broader measure was 9.7 percent in May compared with the official rate of 5.6 percent.
The Challenger report on Thursday said if the flow of non-working Americans, who are not counted in the official unemployment rate, were to reverse the jobless rate would be sharply higher.
"The hidden network of potential job seekers is below the radar of ... economists and others who monitor the economy for significant signs," said John Challenger, chief executive officer of Challenger.
He described the figures as "stunning". Challenger cited data from the Bureau of Labor Statistics showing 21.3 million people age 25 to 54 who are not participating in the labor force, of which 2.2 million say they want a job and 19.1 million who do not want a job.
"Imagine the impact nationwide if the unemployment rate suddenly shot up," Challenger said.
The 21.3 million is the broadest possible measure of people who are not in the labor force and includes stay-at-home parents, people on disability, students and early retirees.
The report by Reuters drew on a narrower definition that showed an extra 5.9 million people who are on the sidelines of the labor market but may at some point step back into it.
These are the people the Bureau of Labor Statistics describes as "marginally attached" to the labor force and adds its adjusted measure of unemployment.
These are workers who have not actively looked for work in the past four weeks, including "discouraged workers" who have given up. They also include those who have stopped looking for full-time jobs and have settled for part-time work instead.
This adjusted measure of unemployment shows the job market may not tighten as quickly as some bond market investors think.
"It shows there is more slack in the labor market than appears on the surface and as job opportunities improve, we'll see people re-entering the labor force to search for work," former Fed Governor Lyle Gramley told Reuters.
"That means fears that inflation is about break out all over the place do not seem warranted," he said in a recent interview.
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