Jobless rate falling faster than many predicted

— -- What will it take to bring the jobless rate under 8%?

Maybe less than some economists — or even the Federal Reserve — think.

Yes, the economy has been creating more jobs since last fall, producing an average of 223,000 new jobs a month in December and January. Economists are betting the government's employment report for February, coming Friday, will be another reasonably good one, according to a Bloomberg survey showing an average prediction of 204,000 new jobs.

But are more jobs really what has made the unemployment rate drop more rapidly than many expected, as joblessness slid to 8.3% in January from 9.1% in August? It's not the whole story.

Some economists say the real reason for the recent fast drop in unemployment isn't that there are suddenly so many new jobs — it's that far fewer people than expected are looking for work. Nearly three years into the recovery, the unemployment rate has tumbled even though new job gains are far smaller than in past recoveries. Americans could see the unemployment rate continue dropping to — or even breaking through — the psychologically important 8% mark by Election Day with far fewer net gains in jobs each month.

Why could that happen? In plain English, because the percentage of the population that's working or seeking work is shrinking, and some economists believe it's not likely to bounce back even as the job market heals, making the job market less competitive and improving workers' prospects. One factor is the 1.1 million discouraged unemployed workers — some of whom won't come back into the job market even as it improves. Another is the growing number of retirements among the Baby Boomer generation, a generational demographic shift that's converging with a slowly accelerating economic recovery.

"It's a bit of an urban legend that unemployment gets pulled up during recoveries because people surge back into the workforce," said Dean Maki, chief U.S. economist at Barclays Capital in New York. "It's this intuitive concept that everyone wants to believe, and it has never happened."

To understand why, a refresher on the basics of unemployment-rate math is helpful.

•Who is counted as unemployed? You have to be looking for work to be counted in this group. Discouraged workers — those who haven't sought a job in the past month — aren't included.

•What is the unemployment rate? It's the number of unemployed as a percentage of the labor force.

•What's the labor force? It's the number of people 16 and older classified as either employed or looking for work. That excludes people who have retired, have stopped working to raise children or are so-called "discouraged workers."

Economists focused on where the unemployment rate is headed pay close attention to another number: the labor force participation rate. That's the labor force as a percentage of the civilian population not in penal or medical institutions.

In January, the labor force participation rate was 63.7%, the lowest in 30 years. It was more than 66% in early 2008, near the start of the recession.

If employment stays the same, a lower participation rate drives down the unemployment rate. If employment gains rise and the participation rate falls, the unemployment rate falls even more.