Labor Force Continues to Shrink... Distorts unemployment rate

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http://news.investors.com/article/610306/201205040931/labor-force-shrinks-as-disability-grows.htm


Labor Force Shrinks As Jobless Swell Disability Ranks
By JOHN MERLINE, INVESTOR'S BUSINESS DAILY
Posted 09:31 AM ET
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The civilian labor force shrank in April by 342,000 workers, and remains below where it stood when the economic recovery started 34 months ago, according to data released Friday by the Bureau of Labor Statistics. Had the labor force not declined, unemployment would have been 8.3% in April, instead of the 8.1% reported.

That same month, more than 225,000 workers applied for Social Security disability benefits, and nearly 90,000 were enrolled, according to new data from the Social Security Administration.

Compared with June 2009, the month the economic recovery officially started, the labor force has shrunk by 365,000, a trend that has never occurred in any post World War 11 recovery. Those saw the labor force climb by the millions by this point in their recoveries, even as unemployment rates were driven down.

The decline in the workforce combined with the growing population has pushed the labor force participation rate — which compares those working or looking for a job the working age population — fell again in April to 63.6%. That's down from 65.7% in mid-2009, and is the lowest it's been since 1981.

Economists note that the shrinking labor force has masked the true size of the unemployment problem, since people who quit looking for a job are no longer counted as unemployed.

In fact, had the labor force participation rate had stayed where it was in June 2009, the unemployment rate would be around 11%.

Many of those who've quit looking have instead signed up for disability benefits.

So far this year, nearly 1 million workers have applied to get on the disability program. According to the Social Security Administration, more than a third will eventually be enrolled in the program.

Almost 90,000 workers enrolled the program in April, pushing the total for new enrollees over 333,000 in the first four months of the year.

If you add in spouses and dependents, the number of beneficiaries added to the program so far this year climbs to 539,000.

As IBD reported recently, more than 5 million workers and their families have enrolled in the disability program since Obama took office.

A report last fall from the Obama administration's economic advisers warns that the mass exodus of workers who can't find a job onto the disability rolls poses a long-term risk to the economy, since once enrolled, these workers almost never return to the active workforce. This can, the report said, result "in a loss to society of the economic contribution those workers could have made."