The size of the American workforce has fallen by over 1 million people in the past year. Here’s what’s going on.

The July jobs report showed that the number of Americans working or actively looking for work has declined by more than 1 million over the past year. The labor-force participation rate, which measures the share of the population in the workforce, is now at its lowest level since the pandemic, according to MarketWatch's reading of the report.

The development affects the interpretation of the labor market beyond the headline payroll count: fewer people entering or remaining in the workforce can make employment growth look more resilient while narrowing the pool of available workers. It also complicates the relationship between labor supply, wage pressure and consumer demand.

The next data points are the participation rate, payroll growth, wage measures and unemployment claims. The open issue is whether the participation decline reflects a temporary pullback or a more persistent reduction in labor supply, and whether policymakers treat it primarily as a growth concern or as a source of continued labor-market tightness.