Despite the anemic pace of job creation, December saw a sizable decrease in the headline unemployment rate thanks to a decline in the workforce.

A lot of that discussion focused on folks going into early retirement or giving up the search for jobs, but there's another factor, which is the disappearance of teens in the workforce.

Mike O'Rourke of BTIG has a good breakdown of what this looks like:

In examining the participation data, the most notable decrease in participation has been among Teens (Chart 2). Teen participation has been in a long term decline since it peaked at 59.3% in 1978. In January 2000 it was 52.3%. In December 2007 when the recession started, it was 41.3%. Today, it is 34.3%. As noted earlier, a lower participation rate usually helps push the unemployment rate lower. During this Recession, teen unemployment hit a record of 27.1% and currently stands at 25.4%. This is remarkably high considering the way the participation rate among teens has collapsed. If the participation level of teens today was the same as it was at the start of the Recession, or 41.4%, the Unemployment Rate among teens would be approximately 45%.



The next question is how do these teen participation rates fit into the overall participation and Unemployment? Despite only being 4.5% of the Labor Force at the start of the Recession, they are responsible for nearly a third of the 170 basis point drop in Total Labor Force participation. If teen participation was at December 2007 levels, the Labor Force participation rate would be 50 basis points higher at 64.8%, and the headline Unemployment Rate would be 10.1%. Teens lost approximately 1.56 Million jobs from December 2007 through December 2010, which equals 22% of the 7 million jobs the Household Survey has yet to recover since the Recession started. If teen Labor Force participation held the level of 41.4% from December 2007, there would be 2.6 million unemployed teens. Teens represent just over 3% of employed persons, a record low (the 1973 peak was 8.7%).



As investors monitor the decline in the Unemployment Rate, they have to balance the decline in the Labor Force participation rate. The 50 basis points Teens represent within the 170 basis point drop is a notable influence. One must consider what influence those lost jobs and participants have on the economy. Not to minimize the travails of youth, but teens are generally in a position to fall back on their family or focus more on education. Since the overall participation rate peaked in 2000, there is potential a modest structural shift to lower participation was underway. In the end, the contraction of Labor Force participation is still a negative. Considering the origin of a large portion of the contraction, it may not be as influential on the economy as the headline number indicates.