Labor force participation rate falls to lowest in 50 years, outside of Covid era
A now hiring sign hangs in the window of a Chipotle restaurant in Los Angeles, California, on June 5, 2026.
Justin Sullivan | Getty Images
On the surface, the drop in the unemployment rate in June helped put some positive spin on the otherwise pessimistic jobs report; but it was for all the wrong reasons.
That’s because the unemployment rate fell to 4.2%, a one-year low, largely due to workers leaving the workforce, according to Thursday data from the Bureau of Labor Statistics.
In fact, the measure of the working-age population working or looking for work fell to 61.5%, the lowest level since March 2021. Excluding the Covid-era job market, this was the lowest labor force participation rate in 50 years.
Mike Reid, RBC’s U.S. economics chief, said the decline in the workforce points to a “massive exodus” caused by multiple factors.
“The unemployment rate fell to 4.2% as both the number of unemployed workers and the size of the workforce decreased,” Reid wrote in his post-report comments. “This may be a story of retirement, but it may also be a story of former job seekers leaving the workforce.”
don’t stop searching
The household survey from which the bureau draws participation figures features a tale of a steadily shrinking workforce as potentially unemployed workers simply give up.
In June alone, the labor force, a measure of those working or not working and looking for work, fell by 720,000. Similarly, the number of people not in the labor force, which includes the unemployed and those not looking for work, increased by 832,000.
And meanwhile organization researchCounting jobs filled, it showed monthly growth of 57,000. household surveyCounting the actual level of employees, it fell by 507,000 people.
Compared to the previous year, the workforce decreased by just over 1 million, while the number of employed people decreased by 1.06 million and the number of unemployed increased by 40,000. The employment/population ratio fell to 59% in June, its lowest level since October 2021. All this happened as the unemployment rate rose by just one tenth of a point to 4.2%.
“What really impresses me is not the unemployment rate,” said Dan North, Allianz’s senior economist for North America. “An important improvement is the participation rate, and that’s a big drop in one month and a pretty big drop last year. I think that’s the more significant number.”
Not just retirees
The decline in participation is sometimes attributed to a declining immigrant population and the retirement of Baby Boomers and Gen Xers.
However, the biggest decline in June came from workers defined as “prime age” or those in this age range. ages 25 and 54. This rate decreased by 0.6 points to 83.3%, its lowest level since December 2023.
“When we look at the statistics, we see that this argument is not very valid,” North said about the retirement and immigration rationale. “I hate to use the word ‘alarming,'” he added, but said the numbers were cause for concern.
Of course, some economists said the June numbers looked unusual. They cited the large decline in the number of workers, particularly in the leisure and hospitality industry, as a sign that the data may be noisy.
But attendance numbers are part of an ongoing trend.
“It was shocking to see 720,000 people stop looking for work altogether and the hospitality industry lay off,” wrote Heather Long, chief economist at Navy Federal Credit Union. “There is a better job market than a year ago, but opportunities are limited.”
