The unemployment rate dipped slightly to 7.5 percent in April, but that’s little consolation for the millions of workers who have dropped out of the labor force altogether.

By Nancy Cook
Updated: May 3, 2013 | 9:51 a.m.
May 3, 2013 | 9:26 a.m.

The federal government’s latest snapshot of the unemployment rate offered few bright spots Friday. The economy added 165,000 jobs in April—slightly better than March’s revised number of 138,000 jobs. Unemployment went down one-tenth of a percentage point to 7.5 percent; and health care, retail trade, and the food-services industry added positions.

The glaring caveat to this jobs report is the huge number of Americans who remain out of the workforce. Called the “labor force participation rate” in wonkspeak, that number held steady in April at 63.3 percent—the lowest level since 1979.

The economic blogosphere erupted this week with a debate over why that number has been so low and why so many people have dropped out since the start of the Great Recession. Was the decrease a symptom of the weak job market, or just a sign of baby boomers starting to retire en masse?

Demographics and retirements certainly played some role, though economists cannot agree on the extent. About 6.7 million people have stopped looking for work since late 2007, says Heidi Shierholz, an economist with the left-leaning think tank Economic Policy Institute. Roughly 3 million to 5 million of them left because they could not find jobs, economists estimate.

Mind you, these are not people who collect unemployment insurance and send out resumes in search of their next gig. These are people who—at least, temporarily—have exited the workforce. In March, the jobs report showed that 496,000 had dropped out.

So, who are these “missing workers?” Frustratingly, no one knows exactly who they are, why they left, and if they’ll ever return. “The size of the pool there and the gap between the potential labor force and the actual working force represents a huge loss of potential productivity,” Shierholz says.

The answers also have deep political and policy implications over the next decade for the economic and budget outlook: Do we want to pay for the missing workers through programs that help to spur job growth, or through an increased cost in federal benefits?

Economists have not done any precise calculations yet on the way missing workers hinder future economic growth, such as a potential knock to the gross domestic product. Anecdotally, researchers such as Shierholz argue that people who drop out of the workforce are less productive and less likely to maximize their earning potentials over their lifetimes.

If these workers do not return to the labor market, their absence may alter the country’s budget picture. “One of the biggest problems we face with the baby-boomer bulge in retirement is having enough workers behind them to pay their bills,” says Harry Holzer, a professor at Georgetown University’s Public Policy Institute.

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