The headline jobs statistics understate the depth of America’s misery and despair.
The White House and President Obama’s media groupies we’re popping Champagne corks when the Labor Department released its monthly jobs report showing that the unemployment rate had fallen to 7.7% in February, from 7.9% in January. Employers created 236,000 jobs the fifth best month of the Obama years.
Now that we’re past the phony euphoria let’s get real. The latest jobs report is “good” only within the grim, New Normal, that doesn’t put Americans in a partying mood. Even those who have not experienced any interruption in employment don’t feel prosperous or secure. They are likely to be earning less after adjusting for inflation, and virtually everyone has seen family or friends suffer long term unemployment, and/or forced to work below their skill level for less than they’re worth.
The public mood is anxious, not celebratory. The People do not understand how the government unemployment rate could have come down from its 2010 high of 10% when so many around them are still jobless.
The statistic that explains this gap between the official unemployment rate and reality on Main Street is the Labor Force Participation Rate, defined as the percentage of working age adults that is “in the labor force.” To be included in the labor force one must either have a job or qualify to be counted as “unemployed” by meeting certain criteria.
Not everyone without a job is counted as “unemployed.” Obviously we don’t want to make the situation look worse than it is by counting stay-at-home parents or college students or other adults who don’t want or need a job as “unemployed.” So government statisticians include only those who are actively seeking a job in the official count of unemployed.
When people have been unemployed for a long time they tend to become discouraged and spend less time on job search activities and thus don’t qualify by government standards as “unemployed.” Labor Department statisticians reclassify them out of the labor force, lowering the labor force participation rate. The unemployment rate also goes down because these jobless people aren’t counted. But they still need and want jobs, and their family and friends still consider them unemployed.
The chart to the left shows the recent, sharp drop in the labor force participation rate from old normal to the new normal. We designated 66% as “old normal” not because it was the highest ever, but because it was the average, with very little variation for five years before, and the first year of, the 2008-09 recession.
We designated an unemployment rate of 4.8% as old normal because it has been the average rate between recession years since the 1950s.
The Obama Administration hopes we will all accept a lower unemployment rate as progress toward the goal. But Americans will not believe that things are back to “normal” as long as almost everyone knows people who are still suffering, even if the government doesn’t count all the sufferers in the official, monthly, unemployment statistic.
The first chart at the top shows just how far we have come and how long it will take to create enough jobs to bring both the unemployment rate and the labor force participation rate back to Old Normal. If job creation were to continue at the February rate it would take almost eight more years! If the average rate of job creation over the past six months were to continue it would take an astounding fourteen more years!
This situation is unprecedented since government began its current employment reporting system in 1947. Before that, the great depression of the 1930s was the longest economic downturn in US history. It lasted roughly ten years. We’re starting year six of the current slump, and if government policies don’t change it will take another 12 to 14 years to get back to a normal job market.
But it doesn’t have to be this way.
History gives us a clear road map to prosperity if only our political leaders would give up their dreams of a society and economy dominated by government and allow liberty and free enterprise flourish