By Lucia Mutikani

WASHINGTON, Sept 23 (Reuters) - When Daniel McCune graduated from college three years ago, he was optimistic his good grades would earn him a job as an intelligence analyst with the government.

With a Bachelor of Science degree from Liberty University in Virginia, majoring in government service and history, McCune applied for jobs at the National Security Agency, the Federal Bureau of Investigation and other agencies.

But after a long hunt that yielded only two interviews, the 26-year-old threw in the towel last fall, joining millions of frustrated Americans who have given up looking for work.

"There's nothing out there and there probably won't be anything for a while," said McCune, from New Concord, Ohio. He has moved back home to live with his parents, who are helping him pay off his college debt of about $20,000.

"I don't like it, it's embarrassing. I don't want to be a burden to my parents," said McCune, adding that he felt like a high school dropout.

Economists, analyzing government data, estimate about 4 million fewer people are in the labor force than in December 2007, primarily due to a lack of jobs rather than the normal aging of America's population. The size of the shift underscores the severity of the jobs crisis.

If all those so-called discouraged jobseekers had remained in the labor force, August's jobless rate of 8.1 percent would have been 10.5 percent.

The jobs crisis spurred the Federal Reserve last week to launch a new bond-buying program and promise to keep it running until the labor market improves. It also poses a challenge to President Barack Obama's re-election bid.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one has fallen by an unprecedented 2.5 percentage points since December 2007, slumping to a 31-year low of 63.5 percent.

"We never had a drop like that before in other recessions. The economy is worse off than people realize when people just look at the unemployment rate," said Keith Hall, senior research fellow at the Mercatus Center at George Mason University in Arlington, Virginia.

The participation rate would be expected to hold pretty much steady if the economy was growing at a normal pace. Only about a third of the drop in the participation rate is believed to be the result of the aging U.S. population.

SLOW PROGRESS

The economy lost 8.7 million jobs in the 2007-09 recession and has so far recouped a little more than half of them.

Economists say jobs growth of around 125,000 per month is normally needed just to hold the jobless rate steady.

Given the likelihood that Americans will flood back into the labor market when the recovery gains traction, a pace twice that strong would be needed over a sustained period to make progress reducing the unemployment rate.

Last month, employers created just 96,000 jobs.

Roslyn Swan lost her job in 2007 as a portfolio associate at a financial firm in New York. After submitting hundreds of applications, the 44-year-old is taking a break.

"Maybe after the elections," Swan said of her next attempt to get work. "I know that I will be employed again. I don't know when, but I know it will happen."

Americans of all ages are leaving the workforce, but the problem is most acute in the 20-24 age group, where the participation rate has plunged by 4.4 percentage points since December 2007.

Many Americans typically start working in their teens, taking part-time jobs after school and over summer vacations, a tradition that is supposed to instill a work ethic. With many failing to secure jobs after graduating from high school and college, analysts worry about U.S. competitiveness.

"Because of delays to their career, the skills set accumulation that normally happens in the first or third job is not happening," said Paul Conway, president of Generation Opportunity in Washington, a non-profit, non-partisan organization that works with 18- to 29-year-olds on economic issues.


TOUGH ON YOUNG WORKERS

Last month, the proportion of 20- to 24-year-olds in the labor force was its lowest since 1972. Other age categories are faring little better. The 25-54 age group has seen a decline of 1.8 percentage points since December 2007.

Some, like 27-year-old Casey Potts, have gone back to school. She is studying nursing in Kentucky after losing her medical sales job.

"If I had stayed in medical sales, I would be job searching now," said Potts.

But separate surveys by the Economic Policy Institute (EPI) and Generation Opportunity found little evidence that young people were going back to school when unable to land a job.

One deterrent is the rising cost of education and record levels of student debt. About two-thirds of 2012 college graduates left school in debt, owing on average $28,700 in student loans, according to Mark Kantrowitz, publisher of FinAid.org.

"Young people dropping out of the labor force to go back to school would be a silver lining if it were true," said Heidi Shierholz, a senior EPI economist, adding that enrollment had gradually been increasing for decades.

A Generation Opportunity survey published in August showed a third of young people were putting off additional training and post-graduate studies because of the sour economy.

"This is significant. People are making the decision to put those off because the assurance of a return to investment is not there," said the non-profit's Conway, a veteran observer of the labor market as a former Department of Labor chief of staff.

He said his organization found that young people were doing unpaid internships at nonprofit groups and businesses to prevent their skills from atrophying. Others were joining the military.

Some economists say the participation rate does not paint a true picture because people find work in the informal sector, ranging from legal activities such as child care to crime in some cases.

"People are picking a buck here and there and not being reported in anybody's payroll," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.

"They will say they are not doing anything, even as they have a job and are being paid under the table," said O'Keefe, a former deputy assistant secretary at the Labor Department. "We do not know to what extent that is going on."

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  • 10. Oklahoma

    <strong>Median household income:</strong> $43,225 <strong>Population:</strong> 3,791,508 (23rd lowest) <strong>Unemployment rate:</strong> 6.2 percent (8th lowest) <strong>Percent below poverty line:</strong> 17.2 percent (16th highest) Oklahoma remarkably low unemployment rate of 6.2 percent for a state that is among the nation's poorest. The poverty rate of 17.2 percent has inched up each year from the 2008 rate of 15.9 percent. The low median income suggests a need for higher paying jobs as Oklahoma relies heavily on agricultural production. Also, government and military, which tend to be low-paying jobs, account for the highest percentage of jobs in the state. But Oklahoma is also a major producer of oil and gas. Growth in the energy sector, which tends to pay more, would help improve on Oklahoma's median income of $43,225. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 9. South Carolina

    <strong>Median household income:</strong> $42,367 <strong>Population:</strong> 4,679,230 (24th highest) <strong>Unemployment rate:</strong> 10.3 percent (8th highest) <strong>Percent below poverty line:</strong> 18.9 percent (9th highest) South Carolina has been hit harder than many states by the recent economic downturn. The state's sizable tourism industry has slowed as families cut back on vacations. The state's 10.3 percent unemployment rate in 2011 was well above the 8.9 percent national rate. South Carolina's poverty rate of 18.9 percent was the ninth highest in the U.S. and significantly higher than the national rate of 15.9 percent. Moreover, approximately 6.5 percent of families made less than $10,000 a year, the fifth highest proportion in the country. Meanwhile, only 2.9 percent of families made more than $200,000 a year, the sixth-lowest rate in the country. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 8. New Mexico

    <strong>Median household income:</strong> $41,963 <strong>Population:</strong> 2,082,224 (15th lowest) <strong>Unemployment rate:</strong> 7.4 percent (18th lowest) <strong>Percent below poverty line:</strong> 21.5 percent (2nd highest) Last year, 7.2 percent of families in New Mexico earned less than $10,000, a larger proportion than in any state but Mississippi and Louisiana. In addition, 21.5 percent of residents lived below the poverty line, well above the national rate of 15.9 percent. As a result of poverty and limited job benefits, many New Mexicans cannot afford health insurance. Last year, 19.8 percent of the state's residents were uninsured. This was significantly higher than the national rate of 15.1 percent even though the cost of healthcare in New Mexico was slightly below the national average. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 7. Louisiana

    <strong>Median household income:</strong> $41,734 <strong>Population:</strong> 4,574,836 (25th highest) <strong>Unemployment rate:</strong> 7.3 percent (16th lowest) <strong>Percent below poverty line:</strong> 20.4 percent (3rd highest) Louisiana is located at the center of the poorest region in the country -- the Deep South along the gulf coast. When Hurricane Katrina struck the region in 2005, the southern part of the state was decimated, particularly the city of New Orleans. Six years later, the city was still recovering with almost 17 percent of families earning less than $10,000 per year, more than triple the national rate of 5.1 percent. By many measures, conditions are actually getting worse in the state. As of 2011, for the first time since Katrina, more than one in five residents lived below the poverty line, only slightly better than Mississippi and New Mexico. Louisiana's median income fell by more than the country as a whole, falling more than $2,000 between 2010 and 2011. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 6. Tennessee

    <strong>Median household income:</strong> $41,693 <strong>Population:</strong> 6,403,353 (17th highest) <strong>Unemployment rate:</strong> 9.2 percent (16th highest) <strong>Percent below poverty line:</strong> 18.3 percent (12th highest) In Tennessee some 6.1 percent of families, or about a third of families in poverty, made less than $10,000 in 2012, a percentage point higher than the national figure. Poverty in many of Tennessee's largest cities is even worse than the state as a whole. In Memphis, the state's largest city, 27.2 percent of the population lived below the poverty line, including 13.1 percent of households earning less than $10,000 a year. In Chattanooga, 28.7 percent of the population lived below the poverty line, including 16.3 percent of households earning less than $10,000 annually. While the state's median income was lower than most, Tennessee had the second-lowest overall cost of living in and the lowest cost of living for housing among all states in 2011. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 5. Alabama

    <strong>Median household income:</strong> $41,415 <strong>Population:</strong> 4,802,740 (23rd highest) <strong>Unemployment rate:</strong> 9 percent (18th highest) <strong>Percent below poverty line:</strong>19 percent (7th highest) In 2011, Alabama's median income was more than $9,000 below the nation's median income, while 6.4 percent of families lived off less than $10,000 a year -- higher than in all but five states. For the second year in a row, Alabama's poverty rate was 19 percent, remaining more than three percentage points above the national rate. Despite struggling with poverty, only 14.3 percent of Alabamians did not have health insurance last year -- slightly better than the national figure of 15.1 percent. It is likely that Alabama's cheap health care-the least expensive in the country for the fourth quarter of 2011-resulted in more insured residents.According to Gallup, since August of 2011 almost 23 percent of state residents reported not having enough money to buy food at least once. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 4. Kentucky

    <strong>Median household income:</strong> $41,141 <strong>Population:</strong> 4,369,356 (25th lowest) <strong>Unemployment rate:</strong> 9.5 percent (13th highest) <strong>Percent below poverty line:</strong> 19.1 percent (5th highest) Kentucky's unemployment rate of 9.5 percent, while not as high as states such as South Carolina and Mississippi, was well above the national rate of 8.9 percent. The employment rate will likely stay high in the near future as mining, a major industry in Kentucky, has declined in the past year due to a drop in natural gas prices. Severe poverty plagues the state, as 6.9 percent of families earned less than $10,000 in 2011, the fourth lowest of all states. Meanwhile, a mere 3 percent of Kentucky families earned more than $200,000 a year, the seventh-lowest rate in the country. Fortunately for those with lower incomes, Kentucky has the fourth-lowest cost of living in the U.S., including the second-lowest cost of living for groceries. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 3. Arkansas

    <strong>Median household income:</strong> $38,758 <strong>Population:</strong> 2,937,979 (19th lowest) <strong>Unemployment rate:</strong> 8 percent (tied-25th lowest) <strong>Percent below poverty line:</strong> 19.5 percent (4th highest) While the national median household income fell to $50,502 in 2011, Arkansas was just one of three states where median income remained below $40,000 for the year. Despite an unemployment rate of 8 percent in 2011, nearly one percentage point below the national rate, the 19.5% of families lived below the poverty line, one of the nation's highest rates. Poverty was slightly less of a problem in Little Rock, the state's largest city, which had a 16.4 percent poverty rate and a median income of $40,976. Despite having the third-lowest cost of health care nationwide at the end of 2011, 17.1 percent of residents lived without health insurance last year-well above the national figure of 15.1 percent. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 2. West Virginia

    <strong>Median household income:</strong> $38,482 <strong>Population:</strong> 1,855,364 (14th lowest) <strong>Unemployment rate:</strong> 8 percent (tied-25th lowest) <strong>Percent below poverty line:</strong> 18.6 percent (10th highest) West Virginia's median income of $38,482 was well off the median income of $40,093 in 2007. The state's unemployment rate of 8 percent was well below the 8.9 percent nationwide. But, like Kentucky, a softening mining sector in 2012 could weaken West Virginia's economy. The proportion of West Virginia residents without health insurance grew 4.9 percent, the third-largest increase in the U.S. Fortunately for cash-strapped residents, although the state's overall cost of living is in the middle of the pack compared to all other states, the cost of groceries is the third lowest in the country. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>

  • 1. Mississippi

    <strong>Median household income:</strong> $36,919 <strong>Population:</strong> 2,978,512 (20th lowest) <strong>Unemployment rate:</strong> 10.7 percent (4th highest) <strong>Percent below poverty line:</strong> 22.6 percent (the highest) The median income of the poorest state in the country, Mississippi, was just slightly less than 53 percent of the median income of Maryland, the richest state. Mississippi's median income-like many states- fell each year between 2008 and 2011, dropping $2,677 during that time. Not only did Mississippi have the highest poverty rate in the country, but 7.8 percent of Mississippi families made less than $10,000 in 2011, which was also the lowest rate in the country. While unemployment declined in most states between 2010 and 2011, Mississippi's actually rose 0.2 percentage points, one of only two states to see an increase in unemployment. <a href="http://247wallst.com/2012/09/20/americas-poorest-states-2/#ixzz278PXWQqP" target="_hplink">Read more at 24/7 Wall St. </a>