Historic deterioration of the labor market makes monthly jobs numbers meaningless.
The unemployment rate is misleading because millions of jobless people are not counted. The number-of-jobs-created headline is misleading because of an unprecedented increase in part time employment.
When the latest jobs report was published the White House guided headline writers with this spin from Alan Krueger, Chairman of the President’s Council of Economic Advisers:
While more work remains to be done, today’s employment report provides further confirmation that the U.S. economy is continuing to recover from the worst downturn since the Great Depression…Today’s report from the Bureau of Labor Statistics (BLS) indicates that the unemployment rate declined from 7.6 percent to 7.4 percent in July, reaching its lowest level since December 2008.
As usual, the White House is seeking to mislead those who don’t have the time or inclination to dig into the numbers. A drop from 7.6% to 7.4% looks like significant progress until you discover how it came about.
It turns out that most of the decline in the unemployment rate was due not to more people finding work but to fewer people being counted as unemployed.
To qualify as “unemployed” one must seek work continuously. But people become discouraged after many months or even years of fruitless job hunting and seek employment less often. Because they were not actively involved in job searches during July government statisticians reclassified 240,000 jobless people from “unemployed” to “not in the labor force,” so they were not included in computing the headline unemployment rate.
The labor force participation rate, tracked in the chart above is the percentage of the working age population that is in the labor force. The labor force is the sum of all those who have jobs plus all those who qualify as “unemployed” by actively seeking work.
Since the recession ended in June 2009 the labor force participation rate has fallen from 65.7% to 63.4% because more than six million people have been reclassified from unemployed to not in the labor force. If all those people were still counted as unemployed, the July 2013 unemployment rate would have been a catastrophically high 10.6%. If the labor force participation rate were the same as it was before the recession began in 2008 the unemployment rate would be over 11%
The Chart above, by tracking the labor force participation rate since 1980, and shows why America still suffers so much economic misery even as the unemployment rate declines.
As the American economy recovered from a severe recession in 1980 and 81 the participation rate went up at the same time the unemployment rate went down. In that recovery employers were creating jobs rapidly enough to reemploy all those who had lost jobs in the recession and accommodate the second half of the baby boom generation, tens of millions of men and women who reached working age during those years.
Those who are old enough to have lived through the 1980s as adults remember an explosion in job opportunities as the economy roared back to life. Then, the declining unemployment rate was an indicator of greater prosperity and economic opportunity. But today, because of an unprecedented drop in labor force participation, the unemployment rate is not an indicator of progress toward prosperity. Instead it’s an indicator of the grim reality faced by millions of long term unemployed men and women.
Major Shift to Part Time Employment
Most of those who are counted as newly employed are underemployed. According to the Labor Department Household Survey 980,000 previously unemployed people found jobs in the first seven months of 2013. But more than two-thirds of those jobs are part time.
The spike in part time jobs appears to be statistical confirmation of one of the adverse, unintended consequences of ObamaCare.
ObamaCare will require employers to provide health plans that include a very expensive package of government mandated benefits to full time employees. But it does not require any health insurance for part time employees working fewer than 30 hours per week. The incentive to replace full time jobs with part time jobs is obvious, especially for employers in low-margin businesses that simply can’t afford to meet the Obamacare insurance requirement.