Unemployment in April fell 0.1 point to 8.1 percent, well below the recession/post-recession peak of 10.1 percent in October 2009. But economists have noted the drop in large part is the effect of people giving up the search rather than job creation.
"Even at its best, job creation is falling well short of what is needed to make a substantial dent in unemployment," observed John Challenger, chief executive officer of the Chicago outplacement firm Challenger, Gray & Christmas. "While some would like to attribute the lack of hiring to uncertainty and regulatory roadblocks, the fact is that demand for goods and services simply has not reached a level that warrants accelerated hiring."
The Economic Policy Institute estimates about a third of those dropping out of the workforce are boomers, whether retirement was a choice or the result of job loss.
But that leaves two-thirds of those who have given up seeking work still battling a sagging economy.
In its recent "State of Working America" labor force participation analysis, the institute found the percentage of the unemployed actively seeking work dropped by 2 percentage points from the height of the recession to the end of 2011, with a further decline in the first four months of 2012. A third of the decline was structural -- boomers retiring -- and the rest cyclical, the result of the economic cycle.
"Why does this debate matter? Most concretely, for close observers of economic trends, this debate is consequential because the answer allows us to determine the number of 'missing workers' [workers who would be in the labor market if job prospects were strong]. In turn, this helps provide a sense of how much upward pressure will be exerted on the unemployment rate if the economy begins a robust jobs recovery. While it may sound counter-intuitive for a robust recovery to put upward pressure on the unemployment rate, it can happen …," the institute said.
"If the decline in labor-force participation in recent years was largely driven by otherwise-willing workers who were discouraged from looking for work because of the weak job market, a robust recovery would draw them into the labor market, boosting the labor-force participation rate [as they would now be 'actively looking for work'], and thus the unemployment rate."
The report finds 64.1 percent of people at least 16 years of age were in the labor force in 2011, 1.3 percent fewer than historic trends would have predicted.
"In other words, this exercise suggests that around two-thirds of the decline in the overall labor-force participation rate between 2007 and 2011 [1.3 percentage points out of a 1.9-percentage-point decrease] was due to a cyclical drop in the demand for workers, and the rest was part of long-term structural trends," the institute said.
The institute estimates if more workers had not dropped out of the labor force, unemployment for men ages 25-54 would have been nearly 2 points higher at 10.7 percent and for women in that age group would have been 9 percent instead of the reported 7.6 percent.
"Though the labor market is slowly healing, the unemployment rate is still above 8 percent, hiring is still far below its pre-recession rate, and more than 40 percent of the country's 12.5 million unemployed workers have been unemployed for over six months," the institute said. "In other words, this is not yet a labor market that draws workers in. It is unlikely the missing workers will enter or re-enter the labor market until job prospects are strong enough that they will not face months of fruitless job searching."
One of the side effects is older workers are disproportionately represented among the long-term unemployed, the National Employment Law Project reports.
NELP Executive Director Christine Owens recently told the U.S. Senate Special Committee on Aging some of the problem can be blamed on age discrimination and industry changes that require older workers to learn new skills.
About 40 percent of unemployed older workers had been jobless for at least a year in the first quarter, NELP reported.
"The prospects are dim for older workers who lose their jobs," Owens testified. "They have the highest rates of long-term unemployment of any age group. They face pointed discrimination when they go looking for work, and they are especially vulnerable to financial instability. …
"The severity and impact of long-term unemployment among older workers calls for clear and immediate action on policies that address barriers these workers face in the labor market."
University of Maryland economist Peter Morici said if the same percentage of adults were still participating in the labor force as there were in 2008 unemployment would be 10.7 percent.
"Adding adults on the sidelines, who say they would re-enter the labor market if conditions improved, and part-time workers, who would prefer full-time positions, the unemployment rate becomes 14.5 percent," Morici said. "Factoring in college graduates in low-skill positions, like counterwork at Starbucks ... unemployment is much higher still."
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