As my colleague Chad points out in his analysis of today’s jobs report, the share of the working age population in the workforce fell last month, and that’s one reason the jobless rate fell from 9% in October to 8.6% last month. See here also.
In fact, as Chad notes, the LFPR (labor force participation rate) is down a half a percent since last November, in part because of folks giving up on the weak job market. In that regard, the decline in unemployment is less exciting than you might think–the labor force fell by over 300K last month, accounting for half the 0.4 point decline in the jobless rate.
What if these dispirited labor-force-leavers had stayed in the job market as unemployed persons? Then, as the figure below shows (last bar), the unemployment rate would be 9.3% instead of its current level of 8.6%. What if only half of the leavers were unemployed (i.e., looking for work instead of out of the game altogether)? Then the rate would still be 9%.
Source: BLS, my calculations
I’m not trying to bum anyone out here…just trying to put that sizable drop in the unemployment rate in perspective. There’s an important substantive difference between an unemployment rate that’s falling because more people are getting jobs or one that’s going down because more people are dropping out of the labor market.