Weekend Economists Mark D Day, 2014 June 6-8, 2014

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14. KEY WAYS THE US JOB MARKET HAS CHANGED SINCE 2007

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FEWER WORKING OR SEEKING WORK

The economic storms of the past several years have driven many people to the sidelines. Just 62.8 percent of those 16 and older are part of the workforce, which includes people who either have a job or are looking for one. That's down from 66 percent in December 2007 and is the lowest level in 35 years.

Economists estimate that about half the decline is related to demographics: The leading edge of the baby boom generation has started to retire, a trend that will likely intensify in coming years. And Americans 24 and younger are more likely to be in school than they were 6 1/2 years ago.

But much of the exodus has occurred because more Americans have become discouraged about their job prospects and have stopped looking. The government doesn't count people as unemployed if they aren't actively looking for work. Nearly 700,000 people were classified by the government as "discouraged" in May. That's far below the 1.3 million peak in December 2010. But it's still about twice the total when the recession began.

WHITHER THE PRIME-AGE WORKERS?

Economists are worried about an exodus among those ages 25-54. Those are prime working years, when employees typically start to reap the wage gains that come from greater skills and experience.

Yet the percentage of those ages 25 to 54 in the workforce fell to 80.8 percent in May, down from 83.1 percent in December 2007. In October, the figure fell to 80.6 percent, the lowest since 1984, when women began entering the workforce in greater numbers.

The biggest drivers of the decline, according to researchers at the Federal Reserve Bank of Atlanta: A jump in the number of people receiving government disability aid and an increase in those who have left the workforce for schooling or training.

WHEN WILL THEY RETURN?:

All this matters because it sets up a big question for the economy and the Federal Reserve: How many of those people will resume their job searches as the economy strengthens?

If many people flood back, it would likely keep wages low. But if most don't resume looking for work, pay could climb because of a shortage of qualified job-seekers. If sustained, widespread pay raises could fan inflation. That could eventually force the Fed to raise interest rates to prevent an inflationary spiral.