Why 3.8 Percent Unemployment Rate Could Be Bad?


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Lauren Weber of the Wall Street Journal cites a research paper showing that the unemployment rate will soon get down to 3.8% within the next fifteen years, which sounds good. Given that the unemployment rate is However, this is deceptive because they’re saying that will be due to labor shortages.  I address this concept in a previous blog entitled “Why A Lower Unemployment Rate Is Not Always Good”.

The main problem is that we will be having a large segment of our workforce retiring, but there will be challenges in replacing this skilled workforce.  By retiring, they will leave the labor force and that will lower the unemployment rate.  In addition, you have younger workers, who have been slow to adapt to a changing labor force.  While they are attaining college degrees at a faster rate, it is not necessarily in disciplines in high demand, such as STEM (science, technology, engineering, and mathematics).  If they become discouraged and drop out of the labor force in large numbers, then that could lead to a misleading drop in the unemployment rate.

Therefore, a declining unemployment rate does not necessarily mean a healthier labor market.

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