Participation rate

The U.S. unemployment rate for the month of June was just published and markets celebrated the full employment represented by the 4.1% number. As always, the devil is in the details, and although the end result continues to be good, is not as good as the headline would make us believe. The detail has to do with how unemployment is calculated. In order for a person to be considered in the labor force, you need to be between 16-64 years of age and be “looking for a job”. If you’re a full time student in college, and not looking for a job, or you are incarcerated, your not considered part of the labor force. But if you don’t have the minimum qualifications, have tried to get a job for years without success, and given up, you are also excluded for the labor force. That sí measured by the labor participation rate. And as you can see below, the participation rate keeps falling. Almost 40% of employable individuals are disincentivized from looking for a job. And then, there are external factors: what do you think will be the impact on AI in the labor participation rate? If workers cannot compete with AI, they will stop looking for a job, and you can have a 2-3% unemployment without wage pressures. It would appear to be a goldilocks environment when the reality would feel way different. This is where the old saying “be careful what you wish for, because you might just get it” applies.

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