Janet Yellen may want to check her math.

One reason the Federal Reserve Chair has used to justify keeping interest rates barely above zero is the fact that the labor force participation rate—or the share of Americans over 16 who are in the labor force—has risen over the past year. That is happening amid an overall aging of the population “shows substantial number of people are being attracted into the labor market,” Yellen said during a press conference following the Fed’s September meeting. “My assessment would be based on this evidence that the economy has a little more room to run than might have been previously thought, and that’s good news.”

But as Neil Dutta, Chief Economist with Renaissance Macro Research points out, if you look at the actual flow data showing the number of people each month entering and exiting the labor force, the rate at which workers are entering the labor force is actually lower today than at any point over the last two years.


“It doesn’t really appear that [the rise in the labor force participation rate] is due to workers on the sidelines coming back,” Dutta says. He argues that this is borne out by other data, like the number of people not in the labor force, but who want a job. “That number is higher today than it was in March,” according to Dutta.

So what’s going on here? It appears that people are just staying in the labor force longer than usual, perhaps older folks who may have retired under other circumstances. Although it’s good for the overall economy to have more people working, it’s not necessarily a sign of confidence when people are hanging on to jobs longer than they normally would.

This data shouldn’t change the Fed’s interest-rate strategy, as a rising labor force participation rate will put a lid on inflation regardless of how it’s done, but it should lower our confidence that the Fed can solve the problem of a bifurcated workforce, in which a large chunk of workers are getting left behind, simply through interest rate policy.