White House sees labor force dropouts getting back into the game

Thu Jul 17, 2014 10:14am EDT
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By Jason Lange

WASHINGTON (Reuters) - The White House said on Thursday it expects America's strengthening economy will temporarily halt the troubling decline in the share of workers who have jobs or are looking for one.

Policymakers and investors are closely following this measure of the population's engagement with working life for two main reasons.

First, if the labor force participation rate continued to decline sharply as it has since the 2007-09 recession, it could mean higher rates of inflation lurk around the corner and will require the Federal Reserve to raise interest rates soon.

At just under 63 percent, the participation rate has dropped to its lowest levels since the 1970s.

Economists at the White House, however, said their analysis of labor market history suggested much of the recent decline in the rate was because a weak economy had led out-of-work Americans to put off their jobs hunts.

"As the economy continues to return to full employment, this cyclical factor will continue to dissipate," the Council of Economic Advisers said in a report. "The participation rate is likely to be roughly stable in the near term."

In this regard, the White House view aligns with that of Fed Chair Janet Yellen, who was picked by President Barack Obama last year to head the U.S. central bank.

Yellen also expects workers to reenter the labor force as the economy plods back to health. The extra people seeking jobs could reduce any upward pressure on wages and thus inflation, giving Yellen breathing room before she has to raise rates. Many economists expect the first rate hikes will come next year. Low rates of inflation could set back the timing.   Continued...

Job seekers stand in line to meet with prospective employers at a career fair in New York City, October 24, 2012. REUTERS/Mike Segar