In January 2013, the unemployment rate in San Diego County hit 8.6 percent, and has since dropped to 6.4 percent as of December 2013. While it is easy to assume that a lower unemployment rate indicates an improving job market, there are several factors influencing unemployment rates that suggest otherwise.
Recent decline in labor force participation may help explain the significant drop in the unemployment rate. At the start of the recession in December 2007, the labor force participation rate was 66 percent in California. As of December 2013, individuals looking for work decreased to an all-time low of 62.8 percent(1). The Labor Market Information Division of the Employment Development Department notes that the decline in labor force participation is in large part due to the increasing number of discouraged workers—individuals who have been long-term unemployed and dropped out of the workforce, believing that there is no job opportunity available to them.
Baby Boomer retirements also contribute to decreasing labor force participation rates. Individuals born between 1946–1964 are beginning to be eligible for retirement, causing a large portion of the labor force shrinkage. Approximately 40 to 60 percent of retirements cause about half of the labor force shrinkage. Disability claims are also on the rise, and those who leave the labor force on disability are highly unlikely to return to work. Additionally, the younger side of the workforce (18–24 year olds) tends to focus more on education than work, making them more likely to stay in school or take unpaid internships instead of joining the workforce. Other factors that influence the unemployment percentages include freelance workers, overseas workers, or other types of employment that are emerging in the modern economy(2).
Additionally, the population has grown significantly between 2003 and 2012, from 2,824,259 to 3,177,063, yet the percentage of people involved in the labor force has seen a decline over the years. There is no direct answer to the decreased unemployment rate, but with fewer individuals in the job market, the unemployment rate can appear deceptively positive.
Job growth has also seen disappointing results. The year 2013 ended with the weakest job growth in years: Only 74,000 jobs were added in December, which is the weakest month for job growth since 2011(3). This number fell extremely short to economists’ prediction of 193,000 new jobs for December 2013.
The official unemployment rate has limitations because it does not count all of the unemployed. It is important to note that this official unemployment rate (which the U.S. Bureau of Labor Statistics notes as the “U3” measure) does not include discouraged workers or people who have left the labor force. The U3 measure only consists of people who have actively sought work in the past four weeks. A more accurate measure is the U.S. Bureau of Labor Statistics “U6” unemployment rate, which includes marginally attached workers, discouraged workers, and the long-term unemployed who have looked for a job sometime in the past 12 months. Based on the Bureau of Labor Statistics U6 data for California at 16 percent, SDWP’s Research/Labor Market Information department estimates that San Diego’s U6 unemployment rate is closer to 15 percent, which indicates that unemployment is extremely higher than reported in the U3 measure.
1 “U.S. and California Labor Force Participation Rates.” Current Population Survey of Households (seasonally adjusted). Employment Development Department. Labor Market Division. 23 January 2014.
2 Geewax, Marilyn. “Workers May Be Missing, Or Maybe Just Retiring.” 21 January 2014
3 Kurtz, Annalyn. “2013 ends with weakest job growth in years.” CNN Money. 10 January 2014.
*2013 population number for San Diego from U.S. Census Bureau American Community Survey have not been released yet. The population number for 2013 is estimated based on past population growth trends.
San Diego Workforce Partnership Research/Labor Market Information Department