Originally created 04/02/04

Unemployed Americans dropping out of labor pool



WASHINGTON -- Computer programmer Gunther Viktor is an unwilling work force dropout.

The 64-year-old Phoenix resident was laid off in December 2001 after his employer, a contractor, completed the project to which Viktor was assigned. The work then dried up.

For months, Viktor looked for full-time, part-time or contract work. Then eligible to retire and draw reduced Social Security benefits, he decided to do so. But he really wanted to work five more years.

"When I moved to Arizona eight years ago, there were five or six pages of help wanted ads in the computer section of the paper," Viktor said. "Today we're lucky there's two columns."

The share of the U.S. population working or actively seeking a job has fallen to 65.9 percent, the lowest level in 16 years. Economists say the weak jobs market is causing people to give up their searches and drop out of the labor pool at an unusual pace - holding down the unemployment rate, which was 5.6 percent in February.

March figures were being released Friday by the Labor Department.

"Normally in a recovery the participation rate would rise," said Sung Won Sohn, Wells Fargo's chief economist. "People hear about the improving economy and more job opportunities so they actually come out of the woodwork. We are seeing the opposite of what's been normal in the past. That's why the jobless rate has really become somewhat of a misleading indicator."

People not actively seeking work when the department conducts its survey of households are not counted as unemployed. Those people say they have stopped looking because of frustration or personal responsibilities, such as deciding to attend school.

That growing trend has caused the participation rate to fall 1.2 percentage points since the start of the recession in March 2001. This is the first time the participation rate has fallen 27 months into an economic recovery.

If those people who want jobs but aren't looking were counted, the unemployment rate would be more than 7 percent, said Mark Zandi, chief economist at Economy.com.

"To me, that is much more representative of the state of the job market," he said. "It doesn't feel like a 5.6 percent job market. It feels like more of a 7 or a 7 and a half percent job market."

In one bit of upbeat news, the Labor Department said Thursday that fewer people filed new applications to collect unemployment benefits last week, a sign that companies may be feeling less inclined to cut more jobs.

The economy, while growing, is failing to produce a lot of new work to entice seekers. Just 126,000 net jobs were added in the past three months. The recovery is the weakest for job creation since World War II.

Compared with other recessions, the overall unemployment rate has remained relatively low, rising only to 6.3 percent in June 2003 before declining.

But for people out of work, the average job search was 20.3 weeks - a factor in declining efforts to keep looking, economists said.

Smaller towns and cities in the rural South, or in parts of the Midwest and Mountain West, that lose a factory or call center to competition overseas have little hope of replacing those jobs, Zandi said.

Kevin Gregory, 41, of Millinocket, Maine, was laid off in January 2003 from the Great Northern Paper mill, which shut down and was sold in bankruptcy. He decided to attend community college to earn an associate's degree in business management, but sees no job prospects in his town.

"I don't want to move," he said. "I've lived here my whole life. When my money runs out, I probably will have to."

Older workers are faring best in hiring these days. The participation rate for people age 55 and older has risen consistently during the economic recovery.

"This is the era of the bargain worker - the individual who might require a higher salary but who more than offsets it through better productivity, less need for costly and time-consuming training, offers the ability to mentor and less likelihood of job hopping," said John Challenger, chief executive of Challenger, Gray and Christmas, an employment research firm.

Many older people also are being forced to return to work or delay retirement because of rising health care costs and shrinking nest eggs.

The sharpest declines in labor force participation are among young people. Many are deciding to focus on school or to pursue advanced degrees in hopes the labor market will improve.

Stephen Moore, 23, graduated from Manhattanville College in Westchester, N.Y., in 2002 with a degree in political science. He could not find a job.

"There would be 200 people gunning for the same job," he said. "I found that a lot of the people I was going up against had advanced degrees."

He decided to sink deeper into debt and go to graduate school. Now on the verge of graduating from Suffolk University in Boston with a master's degree and about $60,000 in student loans, he fears that his job prospects have not changed.

"Now if I can't find a job, I've got even more money to pay back and it seems like I'm already stuck behind the eight ball," he said.