High Unemployment the New Normal

The headline unemployment statistics are wrong. Unemployment is higher than 8.1 percent and it will be for a while.

Last month the government said that 8.1 percent of the American work force was unemployed, down from 9 percent in April 2011. Cue the golf clap.

Compared to an unemployment rate that was well above 10 percent in the early part of the Obama Administration, 8.1 percent sounds nice. But it is a moral victory at best. The reality is that the labor market stinks. Just ask college graduates. Or black guys over 19 years old. Or the New York Knicks.

So where is the disconnect between the headline statistics and the reality on the ground? The answer is an unfortunate circular problem.

What the Data Say

Let us start with some of the data. The unemployment rate headline number would actually be higher if it counted people who want a job, but have not looked for one in the past month because they are so discouraged by their prospects. Labor economists use the term labor force participation to refer to the total labor force (including people working and people looking for work) as a percent of the civilian noninstitutional population.

In April 2012, labor force participation was 63.4, the lowest rate since January 1981. This means that while unemployment has fallen from its high mark of 10 percent in October 2009, the percentage of Americans in the job market has also fallen from 64.9 percent that same month down to 63.4 percent 30 months later.

Over the last 20 years, the usual trend is for labor participation to expand as unemployment falls. This is because workers are being added to payrolls, and thus cutting down on unemployment. However, as you can see in this graph below, after the recession ended in the summer of 2009, both participation in the labor market and unemployment numbers have been falling. This suggests that the lower unemployment number is really just because so many people have stopped looking for work. Annoyingly, it doesn’t mean that the nation has increasing employment.

Of course, the White House would complain that there have in fact been new jobs created over the past few years. And that wouldn’t be wrong. Temporary employment from stimulus spending and more business confidence in the recorvery have keep the unemployment rate from being higher. But they have not been enough to make much of a dent in real unemployment.

So what should the unemployment rate be? It depends on how many uncounted workers really want jobs. To get an idea of what it could be, consider the following:

A year ago, the labor force participation rate was 64.2 percent. Still low relative to participation highs back in 2000, but nearly a full percentage point more workers contributing to the economy then the government says there are today. If we were to assume, however, that in fact the labor force was the same today as it was in April 2011 (not that much of a creative stretch), then the unemployment headline figure would have printed at 8.9 percent for the last month.

We could apply the same logic and estimate that if labor force participation were at the pre-recession April 2007 levels, then the unemployment rate would currently be 11.1 percent. And if you were to go all the way back to April 2000, when the labor force participation rate peaked at an all time high of 67.3, then unemployment rate for today would be 13.1 percent.

Lucky for the Obama presidential campaign, the labor force measurement is not as big as it was 12 years ago, and so the unemployment statistic reported in the news is 8.1 percent.

This is not the end of the story, however. If this labor force trend were the result of the recession then we could hope for an employment recovery in the near future. However, it turns out that the declining labor force participation rate is not a new phenomenon caused by the recession or financial crisis. As the above graph shows, the rate of individuals in the job market has been declining for over a decade. And that is where the circular problem kicks in.

The Value of Labor Growth

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  • Tim||

    Have more people stopped looking for work or have more people found work under the table?

  • ||

    Hey, leave Tony's mom out of this.

  • Cool Story, Bro||

    That filthy whore is always hanging around the Bojangles parking lot giving out bj's for biscuits.

  • Mr. FIFY||

    "BJs for Biscuits"

    I smell a new Obama jobs program, and just in time for his "evolution" on gay marriage!

    /drumroll

  • Pro Libertate||

    I want to understand this, too. People aren't just giving up. They're either finding their way into public assistance, working off the record, or both. Probably both.

  • C. S. P. Schofield||

    Probably NOT both. I've been on unemployment. They do their very best to make collecting it as time consuming as having at least a part time job. I found a way to employ myself that gets ends to meet as often as not, and stopped showing up for their mandatory "please fill out this form so we can prove we actually did something today" meetings.

  • ||

    It's not hard to do both. My neighbor is a plumber. The company he worked for laid him off nearly 2 years ago. He's been collecting unemployment the entire time, and working a LOT of odd "handyman" jobs.

  • Tim||

    I think that the growth in jobs is in the underground sector. Cash only, tax free.

  • ||

    I found a way to employ myself that gets ends to meet as often as not...

    Please tell me it's NOT network marketing.

  • GW||

    In my state, unemployment couldn't be easier. Once you visit the unemployment office, the rest of it is online. no forms to fill out every week. Just check the boxes on the web form, and they put more money on your debit card. It's easier than searching for a job on monster.com, much less having feet on the street.

    And people wonder why the labor force is shrinking.

  • ||

    They do a bit of that here in Indiana. You have to take some job-hunting class, then provide updates on your progress, with a minimum amount of hours spent on travel, interviews, etc. It's all pretty easy to fake, though. We had a harder time getting OFF of welfare (food stamps, specifically) than we did getting on. They wouldn't take us off the list.

  • kinnath||

    People who drop off the unemployment rolls completely include people that a just give up and live off the resources provided by a spouse, give up and go on welfare, give up and go underground, and give up and go back to school (which is what I did in '82 even though I had more than another year of eligibility on unemployment insurance).

  • kinnath||

    Wow, 30 fucking years ago. Time flies when you're having fun I guess.

  • ||

    Not necessarily true. A lot of dual income households have become single income households, a lot of students and recent grads have moved back with their parents, a lot of people who have left the labor force have become students, etc.

    Certainly a lot of people have gone on public assistance as well. Social Security disability applications are up 50% and SNAP (food stamp) expenditures have doubled since '08. That's a scarier long-term problem if these labor participation rates are, indeed, the "new normal" given the massive unfunded liabilities we already have in our social welfare programs.

  • BakedPenguin||

    "Of course, the White House would complain that there have in fact been new jobs created over the past few years."

    I can't imagine how hard the administration would have to try to stop any jobs from being created. If they win in November I guess we'll see.

  • Lincoln||

    Let's not forget to tag on another 1% for the incarcerated.

  • ||

    Then and Than.

    Sorry, but I mean, seriously.

    /grammar nazi

  • Being Waterboarded||

    I hate the whole discussion about 'jobs'. It is so distracting from the real issue, which is 'wealth'. If all that mattered were jobs, the gov'mt could create full employment tomorrow by having all the unemployed dig ditches and then fill them back in. They could expand the money supply again to pay them all. Yeah! Full employment! Is that really the goal? I think it is the implied goal whenever I read one of these articles...

  • joy||

    Lucky for the Obama presidential campaign, the labor force measurement is not as big as it was 12 years ago, http://www.petwinkel.com/pet-gucci-c-35.html and so the unemployment statistic reported in the news is 8.1 percent.

  • Concerned Citizen||

    President Carter told us we'd have to accept a lower standard of living.

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