Laid-off workers return to the job market

WASHINGTON — After years of sitting on the sidelines, hundreds of thousands of workers who lost their jobs in the 2007-08 financial crash are finally getting back into the game.

Friday’s jobs report shows that since September, droves of laid-off Americans who had been conspicuously absent from the recovery began returning to the job market, some finding opportunities and others actively seeking them.

The nation’s labor force — people with jobs and those unemployed but looking for work — grew by about 2.4 million over the past six months, about as much as the prior three years combined.

Just last September, the labor participation rate — the share of the working-age population with jobs and looking for work — dropped to a 39-year low of 62.4 percent. But since then, the labor force has risen sharply to 63 percent, still way below the 66 percent in the months before the recession, but nonetheless a two-year high.

“It’s a really good sign,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “It means people are feeling optimistic about job prospects, and people who had dropped out are coming back in.”

The surge in the labor force surprised some analysts who wondered whether many of the laid-off workers would ever return and worried about a permanent, huge loss of productive human resources.

Most of the improvement in participation is coming from prime-age workers, those who are re-entrants, said Sophia Koropeckyj, a labor economist at Moody’s Analytics. The inflow of younger workers, those who are new entrants or have been students, accounts for less than one-quarter of the increase in the labor force, she said.

“People who gave up see the unemployment rate dropping,” said Elise Gould, a senior economist at the Economic Policy Institute, offering one reason for their return. She noted that other government data show job openings are up. “Maybe they’re seeing more ads in the newspaper,” she said. “Maybe it’s just word of mouth.”

In March, the labor force expanded by nearly 400,000 people. The number was so large it pushed up the nation’s unemployment rate to 5 percent, from 4.9 percent in the prior two months, even though there was a healthy gain in employment.

The big question now is, will hiring remain strong enough to bring them into employment rolls and keep them there?

The Labor Department jobs report for March was encouraging. It showed that employers added a solid 215,000 net new jobs last month, after gains of 245,000 in February and 168,000 in January.

That’s an average monthly job growth of 209,000 in the first quarter, down slightly from last year but still more than enough to absorb new entrants in the labor market, such as fresh graduates, as well as many re-entrants.

But the hiring outlook remains highly uncertain. The U.S. economy, which is nearing the end of its seventh year of recovery in June, has been growing at a lackluster rate in the past six months. Corporate profits are declining; business investments, partly because of low energy prices, have been weak; and there’s been a falloff in American trade and industrial activity, thanks to the global slowdown. U.S. manufacturers last month shed 29,000 jobs and have not added any net new jobs over the past year.

Consumer spending has been the primary engine of economic growth, fueled by job and income gains, low household debts and super-low interest rates. Retailers, health-care services and leisure businesses such as restaurants continued to show brisk hiring last month.

The uncertainty also can been seen in the Federal Reserve’s interest rate stance. The central bank lifted its benchmark interest rate from near zero last December, but Fed Chair Janet Yellen this week reinforced market expectations for gradual increases in the near term, given the risks and what she viewed as the precarious nature of the global financial and economic condition.

Recent wage gains also may be luring some workers back. Since the second half of last year, average earnings for all private-sector workers have risen at a slightly faster pace than previous recent years when wage increases were stuck at 2 percent a year. In March, the average hourly pay went up 7 cents from the prior month, to $25.43, or 2.3 percent higher than a year earlier.

Paul Ashworth, an economist at Capital Economics, said the pickup in labor participation has been particularly strong among the lowest skilled, or those without a high school diploma.

“Maybe they needed a rise in wages to convince them it was worth doing,” he said, noting the broad increase in pay by large retailers such as Wal-Mart and Target.

Neither Ashworth nor other economists expect the recent flood of new workers to continue for long. But right now, he added, “jobs are so plentiful that people who weren’t thinking about it are now looking for work.”