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No easy fixes to improving labor market's weakest link
The national unemployment rate hangs at a seemingly healthy 5 percent and the economy is steadily adding jobs. But what's lost in the statistics are the millions of working-age, despondent Americans who remain unemployed because they are not looking. - photo by Kevin Dobbs
The 2008 recession pushed former restaurant cook Rusty Boehles out of the workforce. Since then, various opportunities cropped up as the economy recovered, but the pay was low relative to what he used to earn, or the hours were sparse. In his mid-30s, he currently works odd jobs and lives with a friend to get by.

"You get dejected; you just don't get anywhere," Boehles said one recent afternoon while sipping coffee outside a convenience store in St. Louis. "You basically give up."

Because Boehles is not actively looking for steady employment, he is not considered part of the official workforce. He has plenty of company. The labor-force participation rate, at 62.5 percent in November, was up 0.1 point from the previous month but down from 62.9 percent a year earlier, according to the U.S. Department of Labor. The rate has hovered around a 38-year low in 2015 and represents a pocket of notable weakness and a source of worry in a job market that otherwise looks strong, economists say.

The numbers underlie a vexing problem in the U.S. labor market: Workers can't afford the cost of education and training to qualify for millions of jobs employers haven't been able to fill for a lack of skilled applicants.

Economists say that if the labor force participation remains historically weak in the years to come, U.S. employers may not have the pool of workers needed to grow their employment bases, and the economy overall could suffer.

"There are big-picture reasons to pay attention to this," Sung Won Sohn, an economist at California State University-Channel Islands, said in an interview.

Signs of weakness

The national unemployment rate hangs at a seemingly healthy 5 percent half the 10 percent post-recession peak hit in 2009 and the employers have hired at a 210,000 monthly pace through November of this year. But economists note that the jobless rate is low in part because it doesn't take into account the millions of working-age Americans who are unemployed and not looking for work.

Because unemployment insurance records count only Americans who have applied for benefits, and since it is impractical to count every unemployed person on a monthly basis, the federal government conducts a monthly survey to estimate unemployment nationwide. There are roughly 60,000 eligible households in the survey sample, spanning every region of the country, according to the Labor Department.

The labor force participation rate is 3.5 percentage points below its pre-recession level. Part of the decline can be attributed to an aging baby boomer generation steadily moving into retirement, as economists expected. But the aftershocks of recession have dragged the rate down to near four-decade lows.

While demographic forces "are putting significant downward pressure on the labor force participation rate," the economic downturn "played a significant role in accelerating the recent decline," Elisabeth Jacobs, senior director for policy and academic programs at the Washington Center for Equitable Growth, wrote in a research paper.

Strip out retirees and younger people who are in school, and there are about 20 million unemployed Americans who could enter the labor force, according to federal data. Some, such as stay-at-home parents, do not want jobs, and others are disabled or ill and not able to work. But economists say there are millions of Americans such as Boehles who have fallen out of the active labor force because of their frustration with a lack of opportunity.

If those people were hunting for work and counted in the jobless data, the job growth this year, while consistent, would not be strong enough to maintain the current unemployment rate, Sohn said.

What's more, there are many Americans working fewer hours than they would like. The underemployment rate ticked up to 9.9 percent in November from 9.8 percent the previous month. The average workweek declined to 34.5 hours from 34.6 hours.

Sohn said such data point to notable slack in the job market by employers absorbing more underemployed workers and luring back those who have dropped out of the labor force.

The long-term impact of low labor participation, economists say, is fewer Americans generating productive work, which can hinder the economic growth needed to fund health care, education, social services and federal programs such as Social Security.

But too many workers lack the training to qualify for the full-time, good-paying jobs employers are increasingly creating in growth industries such as health care and information technology.

"The fact of the matter is that a lot of good jobs go begging" because employers cannot find qualified applicants, Sohn said, and this exacerbates the participation rate conundrum. Many Americans lack the financial wherewithal to return to college and gain the expertise they need to land attractive jobs, he said. "And that extra education or training is very important," he said.

Indeed, the labor force participation rate among Americans with a high school diploma but no college to their credit was just 57.5 percent in November. Among those with a bachelor's degree, the rate was significantly higher, 73.9 percent.

No easy solution

A primary obstacle to ongoing worker education and training is steadily rising tuition costs make it difficult to envision the gap narrowing substantially, BMO Private Bank chief investment officer Jack Ablin said in an interview.

"The biggest challenge we have is the mismatch between what much of our workforce has to offer and what our private sector is looking for," he said.

Ablin, who has researched and written extensively on the subject of labor force participation, said there are short-term fixes to this problem from employers' collective view. He said the U.S. could follow the lead of Japan, where attracting and keeping highly educated foreign workers to fill highly skilled jobs is a priority.

"It would be a targeted immigration effort," Ablin said. "But that would be only a stop-gap solution. It would help employers in the short term, but it would not address the problem for unemployed or underemployed American workers, and it would not meet the private sector's long-term needs either."

Another near-term fix, he said, is enticing older workers to stay in the labor force longer. This is already happening. The labor force participation rate among men and women with no disability and who are age 65 or older increased to 24.0 percent in November from 23.4 percent a year earlier.

Ablin said lawmakers could pursue policies that would effectively require more Americans to work longer by raising the eligibility age for programs such as Medicare. But that also has downsides both politically and practically as forcing unwilling older workers to stay on the job would reduce job opportunities for younger workers.

A genuine solution, Ablin said, is to better align K-12 education with private sector needs and develop more focused post-high school training programs either in concert with colleges or via affordable alternatives to efficiently train young workers and retrain older ones.

He noted Germany's success on this front, with schools working alongside the private sector to develop curricula. Students also often work part-time in their prospective fields to gain on-the-job training before graduating.

But Ablin said much of the German education system is managed at the national level. In the U.S., education policy is state and locally driven, and some states have made efforts to replicate the German model. But implementing such change on a piecemeal basis would have little effect on the national employment landscape.

"The bottom line is education," Ablin said. "We have to find a way to train our workforce to meet the needs of our private sector. But there is no easy or fast answer."

That reality does little for Americans currently at the margins of the labor force. Boehles, for one, says his vision of eventually developing a career is fading. His own job-search efforts indicate that college-level training in computer science would match him with the demand coming from employers and provide the kind of income he desires. But he cannot afford college.

"I wish I had a reason to be more optimistic," he said.
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