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Experts: Shrinking workforce, not job growth, driving jobless rate drop

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WASHINGTON – Arizona’s jobless rate is falling toward pre-recession levels, but don’t start the Labor Day celebrations just yet – experts say the drop could be driven as much by a shrinking labor force as a growing job market.

After peaking near 11 percent in 2010, Arizona’s unemployment rate has been falling steadily and stood at 7.0 percent in July, according to the latest numbers from the Arizona Department of Administration.

But Aruna Murthy, the department’s director of economic analysis, noted that “unemployment is slowly declining, but jobs available have not been growing.”

That’s possible, Murthy said, because fewer workers are competing for those jobs. One reason for the falling number of workers is unemployed people who just give up.

“People drop out of the work force because they don’t find a job,” Murthy said. “They get discouraged and drop out of the labor force.”

Numbers for Arizona are hard to come by, but the Economic Policy Institute estimated that there were about 5.8 million “missing workers” across the nation this month. That’s the number left after taking the total population and subtracting workers, unemployed people who are looking for work, students, retirees, the disabled and people who choose not to work, to look after a family, for example.

When EPI adjusted the national unemployment rate to account for those missing workers this month, it came up with a national jobless rate of 9.6 percent, more than 3 percentage points higher than the official rate.

Another, easier to account-for, factor for the shrinking workforce is the aging population, with more and more people reaching retirement age. That’s particularly true in Arizona where where 1.8 million of the 6.5 million residents were over 55 in 2013, according to the Census Bureau, or 27.7 percent of the state population compared to 26.6 percent nationally.

Gary Burtless, a labor economist at the Brookings Institution, said it’s not hard to figure out.

“The drop in labor force participation – a little more than half can be explained by the aging population,” Burtless said. “The baby-boomer generation got older. Do the math.”

As that generation enters retirement age and leaves the workforce, it leaves their jobs open for others in the workforce to take advantage of. It’s not new jobs being created as much as old jobs becoming available to new workers, Burtless said.

The Census Bureau predicted that baby-boomer retirement boom would continue to have a positive effect on the unemployment rate for another six years, until about 2020.

Murthy said it can be easy to get lost in monthly statistics, but that it is important to take the long view.

“Even when employment is good, unemployment can go up,” she said. “We need to look at unemployment rates over six months, not month-to-month.”

Whatever the factors, she said, the overall picture now is optimistic.

“The labor force (employment) is growing, and unemployment is declining,” she said.