So says CalculatedRiskBlog here:
If the participation rate had held steady at 64.5%, then the unemployment rate would have only declined to 9.64%. [Instead, unemployment fell to 9.4 percent.]
So almost 2/3rds of the decline in the unemployment rate was related to the decline in the participation rate. Some of the decline might be from workers going back to school, but some is probably due to people just giving up.
A large portion of the decline in the participation rate was for people in the 16 to 24 age group. ...
Another group that saw a decline in the participation rate was men in the key 25 to 54 age group. I wonder if these people are just giving up? ...
The participation rate has fallen sharply from 66% at the start of the recession to 64.3% in December. That is almost 4 million workers who are no longer in the labor force and not counted as unemployed in U-3, although most are included as "discouraged workers" or "Marginally Attached to Labor Force" in U-6.
A decline in the unemployment rate mostly due to a decline in the participation rate is not good employment news.
Here is Mish's annotated version of the chart from Calculated Risk:
