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Where have all the workers gone? An explanation

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In the wake of the so-called "Great Recession," something has been occurring in the employment statistics issued by the U.S. Bureau of Labor Statistics. The population has been steadily increasing, but the actual size of the available workforce (both employed and unemployed) has remained almost stagnant.

J.P. Morgan economists Dr. David Kelly and Brandon Odenath point out that "since October 2009, while the civilian population aged 16 and older has risen by 8.6 million people, the labor force has risen by just 1.4 million people, cutting the labor force participation rate to its lowest level since 1979. Put another way, if the U.S. economy had just maintained the participation rate that prevailed in October 2009, there would be almost 4.2 million more people in the labor force today."

But those four million workers dropped off the radar screen. Many economists and pundits have been attributing this shrinkage to workers dropping out of the workforce, discouraged by harsh economic conditions. This may be the case for some, but Kelly and Odenath have been looking at the data and have another explanation: pure demographics.

"By far the biggest reason for the decline in participation rates has been the aging of the population, as more workers enter age groups which are typically more associated with retirement than work," they state in a new research paper. So blame demographics, the beginning of the baby-boomer bulge entering their retirement years.

It can be argued that larger numbers of older workers in their 50s and 60s have been discouraged by the lack of opportunities, and are opting for retirement sooner than they would have in a gangbuster economy.

However, there is a countervailing trend as well -- people are living longer and healthier, while facing  higher retirement costs (especially healthcare costs), Kelly and Odenath point out.

And, I might add to their thesis, attitudes toward work have changed greatly since the time their World War II-era parents were toiling in their workplaces. There are far more people engaged within the professional and creative classes, and are therefore likely to view work as a rewarding part of their lives -- versus a 9-to-5 slog to be gotten over with as soon as possible.

There are few, if any, statistics that can tell how many people are foregoing traditional, formal 40-hour-a-week jobs in favor of more creative or entrepreneurial activities.

Still, the formal retirement rate keeps going up, and the net result is an economy with fewer and fewer available workers -- at least in the formal 9-to-5 sense. "Baby boomers are distorting the numbers, because they account for an outsized portion of the population and as they move from prime working age into their golden years, their retirement drags down the overall participation rate just as they helped to elevate it when they entered the market," Kelly and Odenath state.

This has implications for the economy at large, as a dearth of qualified workers may slow economic growth.  Changes need to be made to encourage immigration and labor force participation, Kelly and Odenath urge.

In addition, there needs to be a way to look at and measure the impact of people engaging in non-traditional approaches to careers, such as part-time, creative and entrepreneurial pursuits. Dropping out of the workforce doesn't mean dropping out of life.

— By on May 11, 2013, 3:56 AM PST

Joe McKendrick

Contributing Editor

Joe McKendrick is an independent analyst who tracks the impact of information technology on management and markets. He is a co-author of the SOA Manifesto and has written for Forbes, ZDNet and Database Trends & Applications. He holds a degree from Temple University. He is based in Pennsylvania. Follow him on Twitter. Disclosure