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Let's talk about jobs


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Honesty is hard for some, impossible for others. Unemployment figures and the way they are reported is a good example. Context is one of those tricky words for politicians. Because, when applied, it tends to trip up their attempts to shade news a certain way. Without it, they’re much more able to do their shading than when context is added to their formulation.

Take the unemployment numbers – the “official” unemployment numbers. We’re supposed to believe that everything is getting better because that number has come down from 10% to its current “official” level of 8.5%.

But when one digs into that number, it becomes apparent that one can only get to 8.5% if one is willing to write off over a million American workers who’ve somehow “vanished” from the labor force.

Or in other words, in context, with those workers being added back in as they should be, our unemployment rate is much higher than 8.5%. Dale has explained this many times. I’ve pointed it out a few times. Investors Business Daily does it this time:

Nearly 1 Million Workers Vanished Under Obama


Initial jobless claims unexpectedly jumped by 24,000 last week to 399,000 as more workers lost their jobs, the Labor Department said Thursday. At the same time, the economy continues to lose workers.

In the 30 months since the recession officially ended, nearly 1 million people have dropped out of the labor force — they aren't working, and they aren't looking — according to data from Labor's Bureau of Labor Statistics. In the past two months, the labor force shrank by 170,000.

This is virtually unprecedented in past economic recoveries, at least since the BLS has kept detailed records. In the past nine recoveries, the labor force had climbed an average 3.5 million by this point, according to an IBD analysis of the BLS data.

"Given weak job prospects, many would-be workers dropped out of (or never entered) the labor force," noted Heidi Shierholz of the Economic Policy Institute in her analysis of the BLS jobs report issued last Friday. "That reduces the measured unemployment rate but does not represent real improvement."

According to the BLS, the "labor force participation rate" — the ratio of the number of people either working or looking for work compared with the entire working-age population — is now 64%, down from 65.7% when the recession ended in June 2009. That's the lowest level since women began entering the workforce in far greater numbers several decades ago.

If you adjust for this drop, the unemployment rate would be close to 11%, instead of the official 8.5%.

Long-Term Economic Impact

Not only does the shrunken labor force mask the real size of the unemployment problem in the country — since only those actively looking for work are counted as unemployed — it likely means that economic growth will be subpar going forward.

"The fall in the labor force participation rate leads us to mark down the long-term potential output growth path of the American economy," University of California-Berkeley economist Brad DeLong wrote on his blog last month. "It is harder to pull people into employment if they are out of the labor force than if they are in the labor force and unemployed."

The weak job market has also helped depress wages. Real median annual household income has dropped 5.1% since the recession ended, more than the 3.2% decline during the recession itself — according to a new Sentier Research report.

The smaller labor force is just one of the problems with the current unemployment number. The other is that the jobs being created aren't keeping pace with population growth. Since June 2009, the economy has added 1.4 million jobs, which is below the more than 2 million needed to keep up with population growth and far below the gains experienced at the same point in the previous 10 recoveries — which saw job gains average more than 4 million.

Historic Jobs Recession

Payrolls are still 6.1 million below their January 2008 peak. After January, the current jobs recession will be the longest since the Great Depression.

The Economic Policy Institute calculates that when you add the number of jobs lost in the recession and the growth in the working age population over the past few years, the "jobs deficit," as EPI calls it, "remains well over 10 million."

There's also the problem of people who want full-time work not being able to find it. The BLS offers a different unemployment measure that counts not only those currently looking for a job, but those who've given up looking, as well as those who are underemployed because of the soft job market.

That measure has unemployment at a whopping 15.2%.

The latest IBD/TIPP poll suggests the jobless picture might be even worse than this. The poll, taken in the first week of January, found that more than 22% of those surveyed are looking for full-time work, and almost 27% of households report having at least one person looking for a job.

What caused so many workers to drop out of the labor force over the past two-and-a-half years?

One possible explanation is demographics. As more baby boomers hit retirement age, the share of adults working goes down. Yet the labor force had been climbing until Obama took office. In fact, it peaked in May 2009, the month before the recession officially ended.

The other explanation is simply that many of these workers have given up looking, taken early retirement or are relying on government help to keep them afloat.

First Trust Advisors economists Brian Wesbury and Robert Stein argue that labor force concerns are overblown. The latest jobs report, they say, was the best since the economic recovery started. "Let's not make up reasons to be disappointed when the numbers are getting a little bit better every month," they wrote in a Monday dispatch.

Still, even with the recent uptick in job growth, the jobs picture remains worse than meets the eye.


That “labor force participation rate” hasn’t changed significantly. In fact, given our expanding population, it has probably remained at least the same. What the “official” number does is ignore the missing million plus workers and thereby misrepresent the true level of unemployment in this country. That official number also hides the real problem that IBD’s chart shows us – something unprecedented in past recoveries:


Labor force growth, as you might imagine, is one of the indicators of a recovering economy. Instead we seem to be in the middle of fooling ourselves that such a recovery is happening by viewing a falling “official” unemployment number as an indictor of progress in that area. I’m not sure how one can make that argument – in context, as provided by this chart.

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