The Current State of Unemployment

Unemployment statistics are a metric used by economists, policy makers, and representatives to determine the condition of the job market. In 2008, the U.S economy saw a near catastrophic drop in employment and job creation due to the Great Recession, and a long slow recovery in the years following. The best thing we can do is take an honest account of the employment situation, and try to divine from a host of factors where we actually stand. Revealing the big picture of unemployment is a bit like assembling a puzzle. One or two pieces connect by themselves rarely illuminate the whole problem. But, when we see how all these pieces fit together and are interrelated, the big picture presents itself.

A Look At The Numbers

According to the Bureau of Labor Statistics, the total nonfarm payroll increased by 217,000. Unemployment remained unchanged after a drop from 6.7% to 6.3% in April and remains at 6.3% in May. This figure, however, should be taken in account with the number of unemployed reentrants and new entrants a month prior, which both declined in April by 417,000 and 126,000 respectively. A spokesman for The Bureau of Labor Statistics stated that the decline of individuals reentering the workforce between March and April was the largest monthly drop on record.

Nearly 9.8 million Americans remain unemployed. We should also bear in mind the duration of unemployment. 5.1 million of our nations workers have been unemployed for 15 weeks or longer. Further, those who have been unemployed for 27 weeks or longer count  3.8 million.This is particularly significant given that as many as 38 million Americans live paycheck to paycheck. For those 3.8 million Americans who have gone without work for six months, savings becomes nonexistent. As we’ve seen, this can lead to foreclosure, and bankruptcy, further burdening our already strained social welfare system.

Job Quality And Labor Underutilization

The unemployment numbers, while showing some measure of improvement, remain much higher categorically than before the Great Recession. Workers who have remained employed, or rejoined the workforce are not always met with quality and sustainable employment. People working part-time for economic reasons (sometimes called involuntary part-time workers) number 7.3 million in May. Compare this to December 2007 which had only 4.7 million involuntary part-time workers. Clearly, companies are offering reduced hours, or are opting to hire less full time workers. This hardly signifies a burgeoning economy given that millions more workers are unable to find stable employment.

Given the increasingly bleak employment situation, many workers cease looking for work.  As of May 2014, there were 2.1 million people marginally attached to the workforce (those who want and are willing to work but have ceased looking). Among those marginally attached were 697,000 people who became discouraged workers (those that had looked for work in the last 12 months but have stopped looking due to market reasons). If we include the unemployed, with involuntary part time workers the unemployment rate rises to 6.7%.

Finally, let’s say we wanted to find out the total number of people not working as much as they want. First we add all unemployed workers at present.  Then we include involuntary part-time workers. In effect, involuntary part-time employment is unemployment from full time work and a symptom of a weak economy. Then, we should include marginally attached workers and discouraged workers (those who would work given the opportunity and suitable jobs). If we combine these four criteria together and measure them against the total civilian labor force we get 12.2%. This means that in a perfect economy, 18.6 million more workers would potentially be employed, working full time and higher quality jobs, and actively seeking employment.

Labor Force Participation And What It Means

Lastly, we should include labor participation rates. The Labor Force Participation Rate (LFPR) is a percentage of active workers and those seeking employment from the overall population of people 16 and over. For example, if in the age group 18-34 there were a total of 100 million people, and 65 million were working or actively searching for work, the LFPR would be 65%.

At the beginning of the great recession in 2007, the LFPR was around 66%. Flash forward to May of 2014, and the LFPR drops to 62.8%. The factors determining the drop in working adults are twofold: cyclical changes and structural changes. Structural declines in the LFPR means individuals would not return to the workforce even if economic conditions improve, e.g baby boomers retiring. If the drop in LFPR is cyclical, workers would rejoin the workforce given the opportunity and economic conditions permitting.  According to some analysts, as many as two-thirds of the drop in LFPR since 2007 is cyclical.

Further, we should include “missing workers”, or those who are neither employed nor actively looking for work due to economic conditions. “Missing workers” constitute almost six million people. More importantly, we see that half of those missing workers are from prime working ages 25-54 years old. This is a serious problem which must be addressed if we are to develop a more sustainable economy. We can not simply dismiss workers who are willing and able by not providing opportunity for them in the workforce.

This post was contributed by Derrick Miedaner

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