By many measures, the state economy is looking strong: California employers are adding jobs faster than the rest of the country, and the unemployment rate has fallen steadily since 2010, when it hit a record 12.4%.
So why have so many people stopped looking for work?
The proportion of working-age Californians who are employed or actively seeking employment — known as the labor force participation rate — is the smallest it has been since the 1970s. In October, the state’s rate, 62.3%, fell below the national rate of 62.8%. Both rates have fallen sharply since the recession.
“The unemployment rate continues to be the main rate people think of, but it’s misleading — and grows more misleading every day,” said Michael S. Bernick, a former director of the state Employment Development Department. “That the participation rate is going down should signal a number of issues beneath the surface.”
The rising number of workforce dropouts has troubling implications for the state’s competitiveness, entitlement programs, consumer spending and more, economists said. An economic forecast released Wednesday by Chapman University suggested that the slack labor market still has room to grow.
A shrinking labor force could force employers to recruit outside the state, raising immigration and visa issues. Households with fewer breadwinners might scale back spending. A disproportionately small pool of earners may mean less tax revenue for public programs such as Medicare.
“Fundamentally, we have to recognize that the labor force is the most important resource we have in our economy,” said Robert Kleinhenz, chief economist with the Los Angeles County Economic Development Corp.
Retiring baby boomers are a leading contributor to falling labor force participation.
But many of that generation aren’t retiring by choice, and those nearing retirement age are seeking work in record numbers. Indeed, workers ages 65 and older are the only demographic now seeking work in greater numbers than before the recession.
Older people now expect to live longer, healthier lives than past generations and want to defer Social Security payments and other benefits until they physically can’t work. Others need to stay employed because the recession decimated their retirement portfolios.
But many, faced with age discrimination and rapidly changing job requirements, either can’t find jobs or take jobs they might consider beneath them.
“We had a great recession, a digital and technological revolution and a financial crisis — a triple whammy of things that can and do disrupt the labor market and the economy, and those might be delaying an eventual improvement in the participation rate,” Kleinhenz said.
Younger workers face their own struggles, especially those just graduating from high school and college.
One young college graduate, who asked to remain anonymous because his family and friends don’t know he’s living out of his minivan, said he left a bank teller job in San Francisco in August hoping to write scripts in Los Angeles.
He signed up for a UCLA screenwriting class, figuring that he could work at another bank to pay the bills. He spent all of September and early October hunting for jobs, slowly lowering his standards until he was applying for barista positions at coffeehouses. He got no offers, and he wasn’t willing to consider fast-food work.
So he stopped looking, relying instead on his savings, money from family and a rent-free minivan.
He decided to take a tax preparation course through H&R Block, hoping that by the time tax season rolls around, he’ll be certified to work as a tax preparer.
“While I can still afford it, I’d rather be unemployed,” he said. “I’m not grasping at any and all opportunities — I’m not turning anything down, but some places I’m just not applying to.”
Other people are avoiding bleak job prospects by staying in college or graduate school longer, Bernick said. Many middle-age Californians, meanwhile, are choosing to focus on familial responsibilities instead of braving the competition for work.
“This all revolves around job scarcity,” he said.
Many who have quit seeking work are relying on government disability benefits, he said. From 2000 to 2012, the number of people filing disability claims soared 80% to 9 million from 5 million — a much faster rate than the previous decade.
Even programs such as Ticket to Work, which offered free career counseling and job placement, are often less appealing than staying on Supplemental Security Income and Social Security Disability Insurance, Bernick said. Many participants fear that the income that comes with a job could disqualify them from the safety net.
“The system itself still has some strong disincentives to work,” said Bernick, now special counsel at the law firm Sedgwick.
In Los Angeles County, a shrinking workforce coincides with a loss of population — 94,299 people have left from 2008 to 2012, according to the Census Bureau.
Nearly two-thirds of the working-age people to leave the county were in the labor force; half were employed. Los Angeles has lost more professionals than it has gained — most of them in management, business, science and arts occupations, followed by sales and office workers.
Many leave because of the high cost of living, high state taxes, lack of affordable housing and traffic congestion, said Esmael Adibi, director of Chapman’s A. Gary Anderson Center for Economic Research.
A year ago, Tom Truscott, 51, was laid off from a large health insurance carrier in Southern California after working for nearly 15 years as an underwriting director. He dropped out of the labor force for several months, living off of his savings and a severance payment. He pondered starting his own business.
He returned to the job hunt in the spring, looking for similar work and a comparable six-figure salary. California offered slim pickings — positions like his rarely opened, and he didn’t have enough advisory experience to be a consultant.
“I knew that those jobs are really hard to come by,” he said. “So I had to look elsewhere.”
This fall, he moved to Bellevue, Wash., for a managerial job. He’s earning slightly less, but he’s able to afford a “much nicer house on a lot twice the size.”
“I didn’t want to leave California, per se,” he said. “But I was obviously willing to expand my geography to maintain my standard of living.”