Beneath the rosy employment report lives a reality of low-paying part-time and temporary work with no benefits or security.
Americans need to stop obsessing over the unemployment rate
On June 1, US president Donald Trump tweeted a barely veiled spoiler about soon-to-be-released employment data—violating presidential norms (and very possibly the law) in the process.
The president’s hint that the monthly job numbers would be upbeat seems to have moved markets. But there’s something even more troubling than Trump’s personal disdain for rules, according to Jeffrey Snider of Alhambra Partners.
According to the latest jobs data, the steadily declining unemployment rate is down to just 3.8%. But that sunny statistic belies a deeper infirmity in the labor market, Snider argues on his blog. Namely, working-age Americans have been giving up on finding jobs.
The public typically perceives a low unemployment rate as reassuring because it suggests that everyone who wants a job has one. But the broader set of jobs data suggests that’s not the case. ”As usual, the consequences of truly no growth in the labor market leaves particularly politicians to emphasize nothing other than the unemployment rate,” Snider says.
Trump himself used to complain about just this issue. Bashing the official unemployment stat was one of his bigger campaign trail themes. Back in June 2015, he made this remark about the official unemployment rate (which was then 5.5%): “Our labor participation rate was the worst since 1978…. Our real unemployment is anywhere from 18 to 20%. Don’t believe the 5.6. Don’t believe it. That’s right. A lot of people out there can’t get jobs.” And in May 2016: ”You hear a 5% unemployment rate. It’s such a phony number. That number was put in for presidents and for politicians so that they look good to the people.” A month after his victory in the US presidential elections, he was still sticking to his guns: “The unemployment number, as you know, is totally fiction.”
Given this history, Snider suggests, Trump should know better than to tout the latest unemployment numbers. To understand the problem, it helps to explain how the US government measures the health of its workforce.
The official labor force is made up of two types of people—those with jobs, obviously, but also the “unemployed,” defined as those ready to work who have actively looked for a job in the last four weeks.
The unemployment rate captures the number of unemployed people as a share of the labor force. But it doesn’t tell you anything about people who stopped looking for work a month ago or more. This group has effectively dropped out of the labor force.
So when the unemployment rate is falling, it could be for two reasons (or, more likely a combination of both). More people could be getting hired. Or more people might be giving up on trying to find work.
When politicians, pundits, and the press hail a low, steadily declining unemployment rate, they’re assuming that the first phenomenon—formerly unemployed people finding jobs—is driving that decline. But Snider points out if employers were actually on a hiring spree, we might expect a steady, sharp rise in the ranks of people working or actively looking for work, relative to the numbers of those who have left the labor force altogether. ”If the jobs market was truly a strong one currently, there would be a clear rush of those not in the labor force to join it,” he says. “Those millions right now outside the official numbers would be moving back into them if they were given a legitimate shot at fruitful employment.”
That’s clearly not happening. Despite the rumored labor shortage that the media’s been hyping, the share of working-age Americans who have jobs or are trying to get them continues to slip. The labor force participation rate—the share of the civilian population ages 16 and older that is working or looking for work—dropped again in May. Now only 62.7% of people in that group have jobs or are actively trying to find one. (That’s about the same as in the late 1970s, before women joined the workforce en masse.)
That’s not just because America’s workforce is getting older. Despite this being the longest US economic expansion on record, a smaller share of workers aged 20 to 54 are currently in the workforce than when the last recession began, in Dec. 2007.
Another sign of slack in labor market comes from wages. If hiring is getting harder, as the ultra-low unemployment rate implies, then employers should have to pay higher wages to attract candidates. That had been happening. But since late 2016, the pace of wage growth has flattened, as Dean Baker, head economist at the Center for Economic and Policy Research, flags.
It’s not clear why American adults are dropping out of the workforce, but it suggests social and economic ruptures of an alarming scale. Even more alarming still is the fact that those with power and influence still deny the problem, exalting 3.8% unemployment as proof that regular Americans are doing just fine.
Trump used to be one of the few exceptions—which was why, despite his many flaws, some saw his presidency as offering hope for middle America. Not anymore. As Snider puts it, “The one guy who was finally willing to be honest about the state of American labor appears to have become just as conventional as the all the rest.”
What Is the REAL National U.S. Unemployment Rate – Why the Numbers Can Be Misleading
The unemployment rate is a variable that economists routinely use to measure the health of the economy.
However, some people think the federal unemployment rate doesn’t accurately reflect reality. In fact, the real rate of unemployment may actually be much higher than what’s reported.
The state and federal governments calculate unemployment differently. States often measure unemployment by the number of people receiving unemployment benefits. But that, of course, can be misleading since unemployment benefits expire, leaving the unemployed without a way to be measured.
The federal U.S. government, which releases the ubiquitous “unemployment rate” our country focuses on, uses a calculation to measure how many people are unemployed, though this measurement is also flawed.
How Is the Unemployment Rate Calculated?
Surveyors from the Bureau of Labor Statistics (BLS) visit 60,000 households every month and ask a number of questions to determine someone’s employment status. If someone works full-time, part-time, or is self-employed, they are considered employed. If someone does not have a job of any kind, but has been looking for one for the past four weeks, they are considered unemployed. If someone does not have a job and isn’t looking for one, they are considered outside of the labor force.
The rate is then calculated as the number of people who are actively looking for jobs (i.e. the “unemployed”) divided by the number of people who have jobs plus those actively looking (i.e. the “labor force”). Anyone who is not looking is not considered part of the calculation.
For example, let’s say the BLS conducts a survey of 60,000 households that yields 110,000 respondents. In their survey, they find the following results:
- Of those respondents, 60,000 have jobs. They either work for an employer or have their own business.
- Another 10,000 say they are looking for work.
- The remaining 40,000 are not considered part of the labor force. They may be going back to school, disabled and unable to work, or perhaps have given up looking for work because the economy is so bad. What’s most surprising is that the existence of this last group is completely ignored by the unemployment rate.
According to this result, the unemployment rate would be 14.3%. This is figured by calculating (10,000/(10,000+60,000)) = 14.3%. The 40,000 people who aren’t classified in the labor force are not involved in the calculation, even though this number likely includes those who need work and would gladly take a job if offered one.
Flaws with Unemployment Calculations
There are multiple reasons why unemployment calculations are not completely accurate:
- The number of people left out of the work force is staggering. Millions of people have recently left the work force. The number of unemployed Americans would be more than a third higher if these people were included, which would in turn significantly increase the unemployment rate. Statistics also don’t reflect the number of recent grads who have declared themselves not looking for work.
- The household survey uses a limited sample size. Although 60,000 households may seem like a lot, it is hardly representative of the 115 million or so that exist in the United States. It is difficult to know how well these 60,000 households represent the country as a whole. Many factors go into the determination of who is unemployed, such as education, ethnicity, and geography (which can vary state to state, city to city, or even street to street). If a particular group was overrepresented or underrepresented, the figure can be strongly biased.
- Many people are included as employed when they don’t earn a livable income. Just because someone is classified as employed doesn’t mean they can survive off their income. They are the “under-employed” and are not represented in the federal unemployment rate. I have a friend whose employer only gives her work four days every two weeks, so she still has to live with her parents. Although she is technically employed, she cannot make ends meet with her part-time job. Furthermore, some are considered self-employed, but their business doesn’t earn substantial income. Many other jobs, such as farm workers or tourist companies, offer seasonal employment, so someone classified as employed may only work for a couple of months.
- The business survey double counts people who have multiple jobs. If you work on a fryline at KFC, do auto body work, and help out with a landscaping company, you will add three jobs to the survey. In other words, your part-time job may end up “counting” for someone who is actually unemployed. This makes it difficult to know how many people really have jobs, especially in times when many must find a second job just to get by.
- Overlap can cause confusion. Some people fall into a couple of unemployment situations. For example, students are normally left out of the work force. However, if a high school student starts looking for a job, they become part of the work force and are classified as unemployed until they find one. People are also counted as employed if they just lost their job, but worked during the week of reference the statistician was using.
- People are classified as employed as long as they “technically” still have a job. Often, someone is placed on temporary leave due to a variety of issues, but it’s clear they are at risk of losing their job permanently. Others have to leave for medical reasons, but may not be able to return to work. These people may know they won’t go back to work again, but until their employment status is sorted out, they are classified as employed.
What Is the Real Unemployment Rate?
Unemployment is difficult to calculate accurately for a number of reasons. The biggest problem is that the true unemployment rate is subjective. Here are some questions you might ask yourself when deciding what the real unemployment rate is:- Should we count someone as unemployed if they want a job but aren’t looking for one?
- Should someone who doesn’t feel like working be classified as unemployed instead of being out of the labor force?
- Should disabled citizens who can’t work be classified as unemployed?
- Should self-employed people be classified as unemployed if they have no income?
- Should high school students be included in the calculation?
In addition to the BLS, other organizations measure unemployment and can produce rates up to two times as much or higher than the rate determined by the government.Final Word
Considering the factors above, it’s easy to see how unemployment rates can be misleading. If you need to get a sense of how many people have jobs, be skeptical of figures provided by the federal and state governments. In fact, as unemployment benefits expire, the numbers may actually appear to improve in some states.Unemployment is certainly an important factor to consider when assessing the overall health of the economy, but may be best measured by your own personal experience. If you are one of the many unemployed who aren’t finding work, look less to the overall state of the economy and more toward ways that you might be able to make the best use of your unemployment.
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