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.