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State of the Labor Market

December 2019 Jobs Day Preview: Most Newly Employed Workers Are Coming From Outside the Labor Force

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Despite the low unemployment rate, the labor market is primed to rapidly add jobs as workers get jobs from outside the labor force.

The unemployment rate is at a 50-year low, yet employers are adding jobs faster than needed to keep up with the growth of the population. How can the labor market continue to add so many jobs? The pool of available jobless workers is deeper than the unemployment rate would have us believe. This strong and steady pace has continued because increasingly, the workers finding a job are coming from outside the labor force.

Workers who are outside the labor force have been the majority of people moving into jobs since the Bureau of Labor Statistics began tracking these flows. For example, recent graduates entering the job market and caretakers returning to paid work skip unemployment and move right into employment. What’s notable is how high this share of flows into employment has gotten. At the peaks of the economic expansions in 2000 and 2007, the share of flows into employment from outside the labor force only briefly got close to 70%. As of November 2019, it has moved all the way up to 74.3%. 

This recovery has steadily pulled workers back into the labor force and moves straight into employment from the sidelines have been an important part of that story. The labor force participation rate of prime-age workers is still more than a percentage point below its peak back in 2000, suggesting that roughly 1.5 million prime-age workers are currently out of the labor force and could move into employment.

In the December report, I’ll be looking to see if:

  • the acceleration in employment gains in October and November keeps up,
  • the pickup in weekly earnings growth in the last report was a sign of something to come,
  • And whether employment growth in the goods-producing sector returns to its previous slowing trend after the uptick last month due to GM workers returning from their strike.