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Why aren't more people looking for work?

November 2, 2012: 12:50 PM ET

The October unemployment report was a strong one, but one number is still unsettling: The labor participation rate isn't budging, despite signs the economy is improving.

unemploymentFORTUNE – In the latest look at the health of the U.S. job market before the presidential election, the Labor Department announced Friday that the economy added 171,000 jobs in October, marking the 25th month in a row of job gains.

The gains were better than what economists had predicted, but still well below the monthly pace from earlier this year. But before we get too caught up in what the volatile numbers tell us each month, realize that the October report alone isn't likely going to influence how voters feel when they head to the polls next week and choose the next U.S. president.

To get a better pulse of how Americans feel about their job prospects, it makes sense to look at whether more workers are looking for jobs today. The labor participation rate is important in the sense that an improving economy typically prompts more people who might have been out of work for a while to start searching for jobs again. And so, we would expect that the rate – that is, the share of working-age Americans either holding a job or looking for one – to edge higher.

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Instead, the participation rate has hovered at about 64% during the past year – even as U.S. home prices rise and consumers say they're feeling better about the economy.

To be sure, there's more to it. The participation rate has generally been falling over the past several years, partly because of the influx of aging workers who retire and leave the job market. The fact that the participation rate has stayed steady for the past year partly has to do with workers aging out of the workforce combined with new workers entering the labor force as the population grows.

Even still, signs of a better economy seem to have only made out of work Americans feel only minimally better.

Let's take a look at October's job report: The unemployment rate edged up slightly to 7.9% from the previous month's 7.8%. As an analyst at Capital Economics points out, this had a lot to do with more people returning to the job market. In October, the labor force rebounded to a four-month high of 63.8% -- the same month consumer confidence unexpectedly rose to its highest level in five years.  Still, the bump isn't much of a bump, given that the participation rate this time last year was slightly higher at 64.1%.

What's more, although the wider employment-to-population ratio (the share of working-age Americans with jobs) in October hit a three-year high of 58.8%, it's only a smidge higher than the 58.7% recorded a year ago.

There are many signs that suggest the economy is recovering slowly, but not all American workers seem to be feeling it.

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About This Author
Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

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