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.
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