Why Today's Jobs Numbers Are a Drag

Today's lower-than-expected jobs number will also hurt growth in the future.

The unemployment rate has fallen, but keep the cork in the champagne bottles: it's falling because people are just giving up looking for work. The share of the population that is either working, or looking for work, has fallen to a 35-year low. The economy created just 169,000 jobs last month, barely more than we need to keep up with population growth. It's nowhere near enough to absorb the people who have been out of work for months or years -- what Karl Marx calledthe reserve army of the unemployed. No wonder fast-food workers are demonstrating for higher wages; jobs designed as supplementary income for kids, or housewives, are now being taken by breadwinners who can't find anything else.

To be sure, some of the decline is demographic. The population is aging, and that means people are leaving the labor force, simply because labor force participation peaks in your thirties and forties. So the weak economy can't be blamed for all of this; it's collided with a long-term trend that will continue even if the economy roars back.

That isn't as comforting as it might initially sound, because an aging population that's leaving the workforce is itself a drag on economic growth. GDP growth is basically just the growth in your workforce plus the growth in that workforce's productivity. If your workforce is declining, you have to muster a heck of a productivity improvement to overcome the demographic drag.

Here's the really bad news: The weak economy may be accelerating the rate at which older workers exit the labor market. Thanks to changes in Social Security benefits (and the entry of women into the workforce), labor force participation rates among those over 55 have been trending upwards since the 1990s. But since the recession, that progress has plateaued. Older workers are actually less likely to be out of work than their younger counterparts (probably in part because they're clinging to jobs in order to make up big losses in their retirement accounts). But if they do end up out of work, they have a much more difficult time finding new jobs.

That doesn't just bode ill for the present; it also promises lower growth for the future. There is no ray of sunshine to be found in this jobs report. The best thing you can say about it is that it wasn't worse.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.