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Other Factors Add to Decline of Labor Participation

This is not rocket science and we are not pretending to offer a forecasting model here. Rather, we simply suspect that the consensus does not sufficiently deviate from the three-month average private sector job growth of 250,000 to be meaningful.

Participation Rate

The labor market participation rate is the percentage of the working age population that is either working or looking for work. It has been trending lower since the late 1990s. The participation rate in the U.S. has fallen about 2 percentage points from pre-crisis levels (2007) to 64% at the start of the year.

The largest drop since the onset of the crisis has been among the young, those 16 to 24. The Council of Economic Advisors argues in the Economic Report to the President that the enrollment in school explains nearly the entire decline in the labor force participation rate of this age group and about a third of the overall decline in the participation rate.

While the generally soft economic conditions encourage many to go back to school, college enrollment has been rising for more than a decade, but has accelerated in recent years (Chart 1). One recent survey found that 94% of parents want their child to attend college and for good reason.

Parents see through the obfuscation in the media and blogosphere that question the importance of a college education. They see the government's misclassification of household education expenditures as consumption rather than investment.

Investment it is. Workers with college degrees earn, on average, twice as much as those with a high school degree. The premium has been rising since 1980, when it was 45%. Even before the recession, the real earnings of a high school diploma were at 1970 levels, according to one report.

There are other metrics that illustrate the effects of government programs that encourage college education. There has been a marked increase in student loans (Pell) and they have come to dominate the monthly consumer credit report.

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