The Stunted Growth In The Labor Force Can't Last

The good news for Americans is that the jobless rate in July fell to 6.8%--its lowest level since 1991--at a time when unemployment is soaring overseas. The less positive news is that much of this decline seems the result of unusually slow growth in the labor force.

Over the past 12 months, the labor force, which usually accelerates in the early years of an expansion, has actually increased by only 0.6%. This tiny advance contrasts sharply with 1991 Labor Dept. projections based on current demographic trends that indicated the labor force was likely to grow at an average annual rate of about 1.3% through 2005.

A sluggish job market and depressed wages seem to be the main factors behind the slowdown. Most notable, say Labor Dept. economists, are a drop in labor-force participation among teenagers, who are having trouble obtaining entry-level jobs, and the decisions of many young women to forgo work for a while and have children instead.

Whatever the cause, demographic trends indicate that it won't last. Once the economy picks up, more people will start looking for work, causing the jobless rate to spurt higher. How much higher? If the labor force had grown 1.3% over the past year, the unemployment rate would currently be 7.5%.