The incredible shrinking labor force

March 27--People keep dropping out of the labor force.

In January, the Berks County labor force declined by 1,400 people from December to 203,900, according to the Pennsylvania Department of Labor & Industry. From January 2013 to January 2014, the local labor force declined by 4,800 people.

It's a state and national trend, said Steven Zellers, industry and business analyst at Labor & Industry. The shrinking labor force occurs for various reasons, experts say.

"A lot of the times, the (unemployment) rate has been improving simply because people are dropping out of the labor market," Zellers said.

The annual labor force participation for the United States has fluctuated, with a 2000 annual high of 67.1 percent to the recent low in 2013 of 63.2 percent. Pennsylvania's ebbs and flows are relatively similar, Labor & Industry data show.

The civilian labor force is a subset of Americans who have jobs or are actively seeking a job, are at least 16 years old, are not serving in the military or are not institutionalized. Once someone gives up on looking for a job, that person is no longer counted in the labor force or included in the unemployment rate.

The unemployment rate will decline when the number of unemployed people declines, which can come from increasing employment or from people leaving the labor force, with the former being preferable. It also can decrease when the size of the labor force declines, but that's if there is no change in the raw number of unemployed.

Ed McCann, chief operating officer of Berks County Workforce Investment Board, has been noting the drop-off in workforce participation each month.

"I think it's primarily the same things affecting the country that are affecting Berks," he said.

The most popular explanation, said Michael Leeds, an economics professor at Temple University, relates to the high number of aging baby boomers, who make up about 20 percent of Berks' population, according to the U.S. Census Bureau. Simply, people aren't working because they're old, so they're retiring.

"It's clear that the steady trend of the labor force has been downward, and one of the clearest explanations is, the American population is getting older," said Leeds. "The proportion of Americans who are older has gone up, and more people are hitting retirement age."

Shigeru Fujita, senior economist at the Philadelphia Federal Reserve Bank, published a paper in February backing up the aging-America explanation. In his paper, he raised questions about the claim that the recession has led older Americans to delay retirement to make more money.

Another reason for the shrinking workforce could be because some Americans, known as the discouraged workers, have just given up hope of finding a job, said Robert Thornton, an economics professor at Lehigh University.

"During the times of recession, more workers get discouraged looking for jobs and hopelessly can't find anything," Thornton said. "And then those people who give up are no longer in the labor force and drop out of the unemployed."

It's too early to say how much of an effect the Affordable Care Act will have on the labor force, Thornton said.

The anticipation is that people won't feel bound to an employer to provide them with health insurance when they can purchase affordable health care coverage through a government-run exchange. Americans can be more flexible with job opportunities.

"You can only assume that when that comes into play, then that workforce situation would be even more exaggerated," McCann said.

Thomas Hyclak, an economics professor at Lehigh University who said the baby boomers are the biggest factor in the labor force decline, said it's difficult to know whether the current shrinking labor force is a serious problem. If it is the demographic shift, then, he said, it can't be helped.

"It's hard to say whether it's a problem unless there is some particular issue going on in the economy that's really reflecting choices," he said.

Leeds said it's important to consider the issue, as it can affect the economy.

"The fewer people there are who are engaging in productive activity, the less is produced, and the less there is to go around," he said.

Contact Amy Friedenberger: 610-371-5046 or [email protected].

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