WASHINGTON (Reuters) — For years, the steeply declining share of Americans who have a job or are looking for one has been a grim reminder of weakness in the U.S. economy. But it now appears this painful period may be ending.
Data released by the Labor Department on Friday showed the labour force participation rate fell just 0.1 percentage point last year, a sharp contrast with the 0.9 point drop a year earlier.
The stabilization could help build the case at the Federal Reserve that the economy's recovery is getting closer to the point where higher interest rates will be warranted.
Hefty drops of the participation rate in prior years had led many to question if the falling unemployment rate — which has dropped about a percentage point a year since 2009, ending 2014 at 5.6 per cent — was telling an accurate story about the state of the labour market.
Only people looking for work count as unemployed, so when many job seekers gave up their job hunts after the 2007-09 recession, it had the perverse effect of helping the jobless rate to fall.
But U.S. employers have stepped up hiring over the last year, and there are signs this could be leading some discouraged workers to get off the sidelines.
"Because we're seeing those jobs, we will be seeing more people getting pulled into the workforce," said Elise Gould, an economist at the Economic Policy Institute, a liberal think tank in Washington.
Gould estimates that considerable slack remains in the labour market and that millions of potential workers remain sidelined. And at 62.7 per cent, the participation rate is historically very low.
Still, for the participation rate, just holding stable is a sign of strength in an aging society. Rising numbers of Americans are entering retirement and leaving the workforce, which will put downward pressure on labour force participation over the long term.
Economists puzzle over how much of the drop in participation has been because of aging and how much has been due to a lackluster economy.
One way to look at how the economy is impacting the participation rate is to factor out demographic matters by only looking at prime-age workers, those between ages 25 and 54. They're less likely to be in school or retirement.
And that lens shows the stabilization even more convincingly, as the participation rate was steady last year, the first time it hasn't fallen in seven years.
Moreover, the participation rate is actually now trending higher for some of these prime age workers, such as among Hispanics.
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