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Mild Improvement in Unemployment Numbers Hides Worrisome Signs

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Recently the mainstream press and pundits gushed over the apparently falling unemployment rate. After all, the official unemployment rate fell by 0.2 percentage points to 8.3 percent. Total private job gains were 257,000.

But the numbers can be deceiving; statistics such as those showing the length of average unemployment, the labor force participation rate and civilian employment-population ratio reveal a slightly different picture of the health of the economy.

A chart that offers a fuller context for unemployment is the one below. The chart shows how many people (approximately 15 million) are unemployed, marginally employed and forced to work part time by a lack of full time jobs.  

The average length of unemployment is 40 weeks. If we look at what this means in comparison to all the other recessions in the last five decades, we can see in the chart below that we are at historic and unprecedented highs in terms of the average length of unemployment.  

The number of civilians unemployed for 27 weeks or more is at nearly 6 million; again a record number. At the height of the 1980 recession, only 3 million were unemployed for 27 weeks or longer.

The statistics above reflect that millions of jobs have been lost. The chart of the total nonfarm jobs below shows that we’re still not anywhere near the job levels before the beginning of the recession. 

Many workers can’t find full time work, as the chart below indicates. Again, these are numbers not seen in a decade.

Aside from historic highs of average length of unemployment, the millions of lost jobs and the fact that a record number of workers can’t find anything more than part-time work, another key indicator of the health of the job market is the labor force participation rate. This number has been falling, meaning that more and more people are simply dropping out of the work force.

In the last decade, the civilian labor force participation rate fell from slightly over 66 percent to less than 64 percent. This suggests that the U6 unemployment statistic depicted in the first chart of this article may understate the true unemployment levels — U6 does not measure those who drop out of the labor force. If we add those who become discouraged and drop out of the labor force, the 15 million measured by U6 may understate unemployment by a few million. 

Should they wish to look for employment in the future, the unemployment rate will rise. But many of them may not be returning to work because the longer one stays unemployed, the lower the chance of ever getting back into the job market.

What’s even more alarming is the labor force participation for those with college degrees. In 1992, this rate was over 81 percent, according to the graph below. Today it is less that 76 percent. That’s a difference of approximately 5 percent. We’re talking about a great many people who have graduated from college but are not working or seeking work.  

If they’re all in school, getting more degrees, then they’ve stayed in academia for a very long time. Add this statistic to the one showing that 17 million college graduates are working menial jobs and you get a very bad story: the economy may be hollowing out, as suggested by some economists, such as David Autor, with jobs being generated in the low wage, low skill sectors and the very top for the very highly educated.

The reason why this is particularly troubling in regard to college graduates is that those who stay out of the workforce for any significant period of time may not only lose their chance of ever working in a job of their liking, but their education will also depreciate, leaving possibly millions of young men and women without anything at all, despite having done everything right.  

Finally, the civilian employment-population ratio shows that there are far many more people looking for work than there are jobs available; many people have simply dropped out of the labor force, possibly due to the difficulty of finding work. One has to go back to the 1983 recession to find a lower ratio.  

Which brings us to the larger point: the unemployment rate can fall without many of the unemployed actually finding work if many of them simply stop looking and drop out of the workforce. Many of those who do become discouraged would work if market conditions were better, however. The chart below shows that many of those not in the labor force would like to be working.  

One key question is: when will the economy recover the jobs that were lost?This question depends on the growth rate of the economy. But the latest projections from the Congressional Budget Office aren’t very encouraging in regard to the growth rate. According to their latest outlook report, in 2013 the economy will grow a tiny 1.1 percent, far below the growth rate of 2.5 thought to be necessary to keep up with the population growth and absorb the new workers entering the workforce. What this means is that unless Congress focuses on policies to promote growth rather than austerity, the economy will get much worse but the deficit will get much better. But austerity in a time of serious unemployment is a bad policy. Growth eliminates deficits automatically; austerity in a time of economic crisis promotes the deepening of that crisis.  

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About A. Jurek

A. Jurek is one of the editors at Blogcritics. Contact me at: a.jurek@blogcritics.org
  • Clavos

    Excellent article. Your analysis thoroughly examines and reveals the real, in depth picture of the unemployment situation, as opposed to the simple 8.3 percent figure just released.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    “Growth eliminates deficits automatically; austerity in a time of economic crisis promotes the deepening of that crisis.”

    Not exactly the conservative mantra. The question remains, where does growth is going to come from?

  • jamminsue

    Thank you for this careful analysis

  • Cannonshop

    #2 Damn good question, Roger. Does growth come from Government intervention, or from non-intervention?

    Trillions spent on Interventionist “Stimulus” packages, but the numbers, well…
    kind of don’t bear out success there, do they?

    and “lassez faire” probably won’t do any better-the surviving employers have already discovered that a company willing to go to the ends of the earth for their people, will find they cost significantly less than Americans, and hate to say it, are probably better educated, harder working, and less of a hassle, too.

  • Clavos

    And receive fewer benefits — the greater expense of American labor.

  • Igor

    2-roger: Growth comes from increased DEMAND and nothing else.

    It’s true that the consequence of growth is: “Growth eliminates deficits automatically; austerity in a time of economic crisis promotes the deepening of that crisis.”

    DEMAND is the only thing that can increase growth. You can deregulate business and hand out all the business subsidies you want, but not one iota of growth will proceed if you don’t increase DEMAND. We are in hard times now because of a Demand Drought.

    So the question is: why do we have a demand drought and what can we do to increase DEMAND?

    The answer is that we consciously shifted the economy toward capital intensive industries that lower employment and increase productivity by replacing people with machines.

    As we increased productivity we SHOULD have decreased the workweek to ameliorate the effects of increased productivity and spread work around. Instead, we artificially increased demand (“froth” to use Greenspans word) with advertising and other artificial spending moves. But we also decreased real wages and increased the workweek.

    The easiest way to increase demand is to move money away from the rich (who have a low Marginal Propensity To Spend) and towards the poor (who have a high Marginal Propensity To Spend), because, as all our Econ experts out there know, the Economic Multiplier is equal to the reciprocal of one minus the Marginal Propensity To Spend. And the multiplier expresses the total effect of a dollar spent in the economy. (Those who were awake in Highschool Algebra will recognize the Binomial Theorem at work here, still valid after 400 years).

    It’s just simple math.

    The Boom after WW2 was because FDR had built a gigantic manufacturing facility by commandeering American industry for the war effort, and the GIs coming back from war were eager to buy cars and houses and washing machines, etc., because most of them had started families while at war.

    DEMAND DEMAND DEMAND. That is the mighty heart that pumps the blood of cash through an economy. And our best investment in demand is secured by investing in the poorest people in society because they have to spend all their money.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    There’s no demand, Igor, not only because of lack of confidence but mainly because people are not producing and bringing in income. You can’t separate aspects of macroeconomics one from the other, have to think in terms of the entire complex.

    In any case, my question was rhetorical.

  • Cannonshop

    #6 it didn’t hurt that after WWII, the U.S. had the only functioning industrial base for about ten years, did it Igor? (after all, everyone else had been bombed back to the late middle ages.)

    Are you suggesting we should bomb everyone back to the late middle ages, then sell them stuff to stimulate demand, then? (Hey, you’re using only one data point, that being FDR, so I get to use the other one…fun.)

  • Igor

    After WW2 we had the only industrial base that could satisfy the DEMAND from Europe, which the nazis had bombed back to the stone age. European DEMAND enriched America. And we were ready to satisfy it because FDR had commandeered (socialized) the American industry for the war effort.

    Ben Bernanke used to be known as “Helicopter Ben” because he stated that the best way to solve a recession is to fly over town in a helicopter and scatter $100 bills out over everything! Yes, it works, because the money gets distributed pretty equitably, so the most common most populace people get a share NOT proportioned to their status.

  • Cannonshop

    #9 we saw how well Bernanke’s theories worked in the real world, Igor-a boom, followed by a massive bust we’re STILL dealing with.

    No thanks.

    I’d even go so far as to suggest, Igor, that FDR’s progammes EXTENDED the misery of the Depression, including WWII, and that it was more Truman’s RELEASE of that socialist choke-chain, and Eisenhower’s hands-off policies, rather than FDR’s national-socialist approach, that provided the prosperity (with some help from massive demand in Europe, which the US bombed flat-the Nazis weren’t making thousand plane firebombing raids after around 1943 with any kind of regularity OR success. WE levelled most of Europe’s infrastructure.)

    Not that Socialist solutions don’t have a place-they’re GREAT for converting agrarian to industrial (ask the Soviets), but they’re not sustainable solutions (ask the Greeks, Soviets, former Soviet republics, China…)

    We’re not in a position of needing to convert from agrarian to industrial-we’ve pretty much DONE that already. We’re also not in a position where the other side-Lassez Faire, is going to work either-the same problems present over the long term between the two: Monopoly, whether private or public, is still an economic killer, as is Oligopoly.

    My best guess for something that MIGHT provide sustainable prosperity, is a system that cycles in a manner that breaks up monopolies and allows growth, while also allowing the mismanaged and misinvested firms and obselete industries to die out by market forces.

    I’m not sure what you’d call that-it obviously requires some form of government intervention (breaking up monopolies is pretty much a governmental function-nobody else can do it), but the course of propping up mismanaged wall street and bloated “too big to fail” outfits is fundamentally dangerous and in the long term results in exactly what you do NOT want.

  • http://www.squidoo.com/lensmasters/IanMayfield Dr Dreadful

    It was Arthur C. Clarke who remarked that the goal of most of the world’s economists and politicians is full employment, when what we really ought to be working towards is full UNemployment.

    There are many reasons why the job market is in its current parlous state, but one of them, surely, is the failure to fully recognize that we are no longer a manufacturing economy but a service economy.

    Corporations don’t need as many humans when computers and robots can do the same job and don’t expect a salary. The phenomenon of the non-jobseeking unemployed is only going to grow as more and more people realize that their skills simply aren’t needed.

    The question is, what do we then DO with them?

  • http://cinemasentries.com/ El Bicho

    “The question is, what do we then DO with them?”

    Soylent Green?

  • http://www.squidoo.com/lensmasters/IanMayfield Dr Dreadful

    Ketchup on mine, please.

  • http://www.RosesSpanishBoots.com Christopher Rose

    The solution to the future nature of employment or work may lie in part at least in two trends; the first is the declining birthrate or population numbers in many Western countries (ignoring emigration and immigration for the sake of the argument), and the second is the growth in the ever increasing number of non traditional roles in everything from alternative healthcare to the seemingly endless opportunities the internet is enabling.

    I myself have more money making ideas than one person could possibly ever implement in a whole lifetime and there are assuredly many, many others that have never even occurred to me.

    The surge in popularity of nail salons and the vajazzle industry, the endless growth of arts and entertainment, the as yet unimplemented ways site like this one could support larger numbers of creative writers, the world of work is wider and more diverse than it has ever been…

  • Igor

    10-Cannon is wrong again. The Bush boomlet/bust was created by Alan Greenspan, that old fan of Milton Freidman and Ayn Rand. A 100% Supply-side Laissez-faire disaster.

  • Igor

    We don’t have to turn anyone into Soylent Green, just cut work hours.

    About 30 years ago when HP needed to cut payroll to survive a recession, they polled the employees: have a standard layoff or cut workhours for everyone. The employees overwhelmingly voted to cut workhours and HP survived.

    That’s an example of why we should adopt the German system of having the employees vote for half of the Board Of Directors.

  • Clavos

    It was Arthur C. Clarke who remarked that the goal of most of the world’s economists and politicians is full employment

    Theirs or ours?

  • Igor

    7-roger: confidence has nothing to do with DEMAND. Only the very rich can afford a psychological crisis of confidence and their consumer spending is small, so it matters little. Most people have to spend every cent in their paycheck. The poorest people are the most stalwart supporters of the economy.

    If people don’t have enough money, give them more. After all, that was Henry Fords idea when he decided to pay Ford workers $5 a day, about twice what other people paid. And it worked. And it WILL work.

    The only thing standing between us and a good economy is our Puritan Work ethic which says that being poor is Gods judgement on shirkers and layabouts (and all those Original Sinners whose inclination to vice is evidenced by their numbers of children). Just as God’s judgement on eager, helpful, virtuous and hardworking people is to make them rich. And we all know it’s true because rich people have paid for trumpets to blow and drums to beat to draw our attention to the well paid public speakers who proclaim it in our waiting ears every day. Thus is George W. Bush, who most of us thought was a shirker and layabout, transformed into a virtuous hardworking genius; at least in our minds.

    “In any case, my question was rhetorical.”

    You gotta be careful with that rhetorical weapon, you might blow your foot off.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    In any case, I’m not in favor of artificial means to stimulate the economy. If it is to recover, let it do so by honest, down-to-earth means, otherwise we’re just perpetrating an illusion. So yes, we deserve to be the shape we’re in, and as Mao would say, situation is excellent.

    Besides, I’m not in favor of conspicuous consumption whether by the rich or by the poor, whether for trinkets or for luxury goods. Consumer society is not my idea of a future society. We’ve been down that road, and we’ve seen where it leads. Which isn’t to say I’m not for the people prospering, but there are other ways of attaining prosperity, and what you have in the bank and what you can afford to buy is not my idea of it. So yet, I know how to use rhetorical weapons without blowing my foot off.

    We’re just operating with different assumptions in mind, Igor, you should realize that by now.

  • Igor

    19-roger: Why aren’t you “… in favor of artificial means to stimulate the economy.”? Why do you think that what I propose is artificial, and what do you think is not artificial?

    What do you think artificial means?

    I’ll give you some help: in Econ 101 you learn the model of ‘intrinsic’ and ‘extrinsic’ value. Intrinsic value is some kind of irreducible value and extrinsic value is some kind of perceived value. For example, a hamburger from McDs probably has an intrinsic value of one dollar (indeed, I’ve actually purchased such a burger from McD, much to their disgust and my amusement). But slap 10 cents of lettuce, tomato and an oily spicy dressing on that burger AND a boatload of expensive TV advertising and you can charge $3.95! That’s the extrinsic value.

    If you think about it, our whole economy runs on extrinsic values! And to make it all work we voluntarily get obese, work too many hours, and desire waaayyyy too much after watching “Lifestyles Of The Rich And Famous”.

    IMO everyone is scared of your prescription ” If it is to recover, let it do so by honest, down-to-earth means, otherwise we’re just perpetrating an illusion.”

    No no no! We all LOVE the illusion. And so do you. That’s why we cherish all the illusions, all the movies, all the fiction, all the advertising, all the outright propaganda we consume in our popular communications. NOBODY except a few cranky hippies wants to go back to subsistence existence like our pioneer ancestors.

    Do we?

    One benefit of Conspicuous Consumption (Thorsten Veblen?) by the peasantry is that it democratizes gluttony and perhaps inspires the Power Elite (C. Wright Mills?) to pursue a more ascetic existence to demonstrate their superior sensitivity and good taste, but, alas, that seems not to be the case, as their extravagances seem merely to get more gaudy (not in the good sense, c.f. Barcelona) and expensive.

    Ah well, perhaps there is no hope for us humans except as objects of fun and humor to the Extraterrestrials (if any) who may observe us, much as we now laugh at the antics of various aborigines around the world in the firm belief that we are superior because we have gunpowder.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    You’re way too off tangent, Igor, to respond intelligently. Try to condense your query to a succinct point or two, and I’m certain we can do better.

  • Igor

    4-Cannon: shows why he’s my favorite commentor: he always sets up a delicious lob that’s it’s difficult to ignore, and so much fun to put away.

    The $800billion we allocated to stimulus (half of which went to unproductive business handouts as a bribe to republicans) actually saved about 2-3million jobs according to the CBO, was a pretty good deal by contemporary standards (not to say that contemporary standards are very good). So if we say $400B to save 2M jobs, that’s ‘only’ about $200,000 per job, which is pretty good compared to other government jobs creation investments. Most military contract jobs cost about two or three times that. And if we compare that to the Keystone XL pipeline project currently being discussed, an investment of about $4B will produce about 4000 temporary jobs at a cost of $1million each. Oops! That’s not good! That’s 5 times the cost of Obamas stimulus! For temporary jobs, gone in two years.

    I apologize for the vile empiricism of my post, I know that some people are offended by it, but I seem to have no control over my typing fingers! They seem to have minds of their own! Help me before I type again.

  • Cannonshop

    #11 Soylent Green? REally, it’s probably good for the old environment, and likely could lower the national carbon footprint…

    Of course, if you’re grossed out by the possibility of mass cannibalism, maybe it’s time to stop lying to ourselves about the usefulness of being a “Service Economy” where we wash each others’ socks and reminisce about the days when Americans DID things, BUILT things, and ACHIEVED things.

  • Igor

    11-Dr D: Excellent insight! If our economy were truly successful we would be methodically reducing employment as machines and computers did more human drudgery work.

    We might even reach the blessed state of the Jaco indians who occupied the Gabilan mountains hereabouts, lived off the bounty of the land, mostly acorns, honey and a few small animals, and in 4000 years never warred with the neighbors. Their work day was about three hours, and they spent the rest of their time studying astrophysics and hanging around the acorn grinding rock gossiping and enjoying the company while the women ground acorns into flour. The grinding rock was THE social hotspot!

    They had a typical lifespan of about 35 years (while agriculturists in the Fertile Crescent had about 25), although many lived to be very old, and the biggest danger was the regular appearance of a Grizzly Bear. And the rattlesnakes, of course.

  • http://loftypremise.blogspot.com/ Tommy Mack

    I concur with your analysis, AJ. Austerity in the face of recession makes things worse, not better. Ireland, Spain and Greece are suffering from their austerity policies and the consequences of soaring unemployment and decreased tax receipts. The question has to do with what choices policy makers make and whether or not they are paying attention to reality or rhetoric.

    Tommy

  • http://rwno.limewebs.com Warren Beatty

    A. Jurek, excellent article, well resarched, well presented.

    Re: comment #16, Igor, do we cut hours like they did in France? You cite HP, but again, one company does not an economy make.

  • Igor

    We have a choice between austerity and inflation. Austerity is the choice of the rich and powerful because that protects their assets from inflation and it visits the costs of recovery on the non-rich (who mostly have few assets and many liabilities, and thus would be helped by an inflation that deflated the menace of their liabilities).

    One might think that the non-rich, who are numerous, would perceive where their interests lie and vote (with their numbers) for inflation instead of austerity, but the few rich own and operate all the Main Stream Media (thus enabling them to dictate public discussion) so they are able to convince the simple peasantry that rich people are rich through hard work and self-denial, while the poor are poor because of their own numerous sins, including especially lust.

    So it comes about that the peasants support their oppressors.

    They even believe that members of their own low class caused the crisis by demanding (somehow) deficient loans from bankers, although it’s not clear how they could do that.

    Such is the power of Goebbels “big lie” theory.

    Anyhow, inflation is caused by the rich and powerful as they pursue foreign wars that deplete the public treasury, give themselves expensive tax gifts, and prop up their own failing enterprises with public money. Usually, in the old days, this would lead to a short cycle of spending and collapse, but then the powerful people invented Central Banks (like the US Federal Reserve) to create the APPEARANCE of stability by controlling interest rates (through a government monopoly). Of course, that just pumped currency into the economy through the back door, and created a lot of pent-up inflationary pressure.

    To relieve that pent-up inflationary pressure we need…INFLATION! And we’ll get it eventually, it just depends on whether it’ll be controlled and planned, or a surprise crisis, such as 2008. Boom!

    Greece should opt for inflation rather than austerity. It’s worked for them and many others before. Then the Drachma gets devalued until they create a “New Drachma” and you trade in a million old Drachmas in for one New Drachma, and carry on.

    A pro-inflation economy is almost as good as a Jubilee economy, where the King decrees all debts null and void every five years or so, everybody has a big party, and they carry on.

  • Igor

    26-Warren: in Germany they cut everyones hours, when necessary, and then cut salaries part way back. In France they just cut hours for the same pay.

    When they study productivity it turns out that people working 35 hours are as productive as people working 40 hours.