Unemployment Down -- But Not for Good Reasons

The US economy has grown only sluggishly since the Great Recession, but the unemployment rate has come down fairly sharply.  It was 6.3% in May, compared to 10.0% at the worst of the recession in mid-2009.  But the share of the population with jobs, the "employment rate" has hardly moved, hovering in a narrow range of 58.2 to 58.9%.  If "unemployment" is falling, shouldn't that be because "employment" is rising?  The incongruity here prompted us to look at what's going on the labor market.  There's one broad answer and also some other factors, all of which together give some explanation, but mainly serve to highlight the current clouds over the U.S. economy.

Who Counts as "Unemployed"?

The broad answer to our conundrum is not an encouraging one.  The main reason for a nearly 4 percentage point drop in the unemployment rate from the depth of the recession in mid-2009 to April and May this year is an almost parallel decline in the so-called labor force "participation rate".  In the Labor Department/Census Bureau monthly Current Population Survey, people who respond that they have a job or are actively hunting one are called "participants" in the labor force.  As we noted, the number of people who have jobs has increased only sluggishly since mid-2009.  Many of the people who do not have jobs have stopped looking for work.  The Labor Department's terminology only calls you "unemployed" if you are actually out looking for work and can't find it.  If you haven't been out looking for work in the past four weeks, you're "not in the labor force" and thus not "unemployed".  The number of persons not in the labor force is growing and has risen from 34.3% of the population in mid-2009 to 37.2% in recent months.  The opposite ratio, the "participation rate" has thus dropped from 65.7% to 62.8%.  The last time it was that low was in the late 1970s, just the time when the share of women moving into the labor force reached 50%.

 

The recent pattern of more labor force dropouts is surprising; it is the opposite of what usually happens after recessions.  Traditionally, as the economy begins to grow, people start to look for work again, the participation rate goes up and the unemployment rate increases early in a recovery period until the new jobs emerge; then the unemployment rate falls.  But such an increase in participation did not occur in this cycle.  If the participation rate had even remained at its recessionary level instead of falling, the reported unemployment rate now would be about 11.0%, not 6.3%. 

One fundamental factor in the lower unemployment rate is the simple aging of the population.  Baby Boomers are entering and passing through their 60s.  Many of them are retired, of course, so the general level of their participation is low.  But a good number of older people are still working, and this age group actually increased its employment rates in recent years.   The net result is a favorable downward push on the unemployment rate, albeit a small one, for the right reason: a larger share of these people have jobs.

Teens Pull Back . . .

At the opposite end of the age spectrum, we have some opposite trends, and these are problematic.  Teenagers.  About 20 years ago, 54% of the teenage population, ages 16-19, were in the labor force.  Yes, they had high unemployment rates, but even so, about 44% of them had jobs.  As recently as 2006, not quite 44% were in the labor force and 37% had jobs.   But just lately, only a third of these kids even try to find work and just 27% have jobs.  There's concern in our tone here for both the kids themselves and for the health of the economy going forward.   A large portion of these young people are missing the early work experience and training almost half of the rest of us grew up with.  Press reports suggest that some kids might do volunteer community service, although subsequent job-hunting feedback seems to be less successful for those kids than for ones who have worked for money.

. . . And So Do Adults

We make specific comments about the oldest and the youngest workers, but we also have to note that labor force participation is down among the core group in the middle.  The older workers are largely retired and the younger workers are mostly in school, while that mid-range are people who ordinarily are "working for a living".  But the mid-range, ages 20-64, have seen their participation rate fall from 78.4% in mid-2009 to 76.1% recently.  So we can't explain away the overall decline in participation by attributing it to teens and retirees.  Something is discouraging people from hunting for work.

So yes, the unemployment rate is "down", but we'd rather have a higher reported number and see more people out pounding the sidewalks to get jobs.  We obviously have to delve more into causes about why people aren't doing that.   Meantime, we can address one substantive job market issue.

Are Jobs Available?

Yes, there are some.  A separate Labor Department monthly survey of companies and governments shows 4.46 million job "openings" at the end of April.  This is up 289,000 from the month before; it is approaching the peak range around 4.6 million just before the recession started in late 2007 and compares to a recession low of 2.15 million openings in July 2009.   The openings are spread across the whole span of business sectors, with about 850,000 each in retail and other trade and in professional and business services.  The trade sector, of course, tends to be low-paying, while professional and business services are up the scale considerably.  Manufacturing job opportunities are running about 270,000 openings; while not so large they are also well above their recession lows of 75,000-95,000.  Health care and hospitality sectors, as well, show sizable needs for new employees, with accommodations and food services, especially, having 625,000 openings at the end of April, three times as many as at the bottom of the recession.

While we present a fairly positive description of these developments in job openings, it is true that almost five years after the economy turned upward and supposedly started to grow again, the number of openings remains below prerecession levels.  Similarly, the total number of jobs reported by employers, 138,463,000 in May, only just in that month recovered its prerecession level of September 2007.  So it's hardly surprising that people still have a subdued opinion of economic opportunity and might not be as enthusiastic about job hunting as they have been historically.  There must be more to this story and we'll continue to pursue it.