The drop in U.S. unemployment so far this year may be an early glimpse of what’s to come as the work force ages.
The jobless rate, which was 9.4 percent in December 2010, declined to 8.6 percent last month, according to Labor Department data issued Dec. 2. The report also showed payrolls have climbed by 132,000 a month on average in 2011, around the pace most economists say would keep the rate stable as the population grows.
At play is a decline in the share of the working-age population, known as the participation rate, meaning that the economy needs to create fewer jobs to bring down unemployment. While some of the decrease has been caused by discouraged workers dropping out of the labor force, another driver is that the baby boomer generation is starting to move into retirement, according to economist Dean Maki.
“Demographic forces are the single biggest factor pushing the participation rate down,” said Maki, chief U.S. economist at Barclays Capital Inc. in New York and a former economist at the Federal Reserve. “This is a bit of a slow-moving drama but it’s likely to become more important in coming years.”
Payrolls in the U.S. climbed by 120,000 workers in November after a 100,000 gain the prior month, the Dec. 2 jobs report showed. While hiring “will step up somewhat in 2012,” Maki said, even the current pace is enough to cause a “persistent decline” in unemployment over the long term. He projected the jobless rate will end 2012 at 8 percent.
Last month’s drop in the unemployment rate from October’s 9 percent reflected a 594,000 decrease in the number of people saying they were out of work. At the same time, the labor force shrank by 315,000, prompting a decrease in the participation rate to 64 percent from 64.2 percent.
The share of workers who are leaving the labor force because they are discouraged over job prospects may be shrinking, indicating more are departing for other reasons, including retirement.
Americans leaving the work force after being unemployed as a share of all those saying they were not in the labor force peaked at 3.6 percent at the end of 2010, drifting down to as low as 3.1 percent in September. The number of discouraged workers was smaller in January than in the same month the prior year for the first time since August 2008.
The baby boom, the population bulge after World War II between 1946 and 1964, added 9.4 million people in the 16-24 age group during the 1960s and 7.3 million in the 1970s. Boomers started turning 65 this year, and every day for the next 18 years, about 10,000 more will hit the age that historically has been associated with retirement, according to the Pew Research Center in Washington.