Yves here. This article helps debunk the idea that the low headline unemployment numbers mean the jobs market is strong. In addition to continued poor labor force participation, involuntary part time employment is also high.
By Michael Klein, Professor of International Economic Affairs, Fletcher School, Tufts University. Originally published at openDemocracy
The latest jobs report showed a lackluster gain in jobs in May that was worse than economists had predicted.
While the sudden slowdown in jobs growth after many months of strong numbers is worrying and signals a weakening economy, a more long-term concern is the persistently low labor force participation rate that has not recovered in the decade since the onset of the Great Recession.
I’ve been studying labor market issues for over much of my 30 year career as an economist. Let me explain why you should be paying more attention to the participation rate.
Participation Matters
Strong employment growth is important because getting a job is one of the best ways to improve a person’s economic standing. For this reason, slowing employment growth and rising unemployment are worrisome.
But while the unemployment rate is currently near a 50-year low of 3.6%, that statistic doesn’t tell the full story and can mask a deterioration in the labor market.
The participation rate measures all active workers divided by the working-age population. More importantly, it reflects people’s attachment to the job market – including their economic engagement and also, because a job is such an important part of a person’s identity, their overall well-being.
When people who are unemployed grow too discouraged and stop looking for work, it causes the participation rate to go down. But as a result, the unemployment rate goes down as well because it doesn’t include people who have given up. This makes the picture look better than it is.
From about the late 1980s until 2008, the participation rate fluctuated around 66% to 67%. But after the Great Recession, the rate dropped more 3 percentage points over the next seven years and has barely budged since. The latest jobs report shows it’s at 62.8%.
The 3 percentage points decline in participation translates to over 6 million people no longer in the labor force.
Trends in Men and Women
What’s driving the decline?
Men’s labor force participation has actually been fallingfor almost six decades. One possible reasonfor this is the decline in low-skilled jobs, a decline that was quite sharp during the worst periods of the Great Recession. Even with the improvement of labor market conditions since the depths of the recession, the participation rate has not recovered.
Women’s labor force participation has also been declining, although this is a somewhat more recent phenomenon. It had been rising since at least World War II from around 30% to a peak of around 60% in 1990, when the United States had the sixth-highest labor force participation rate of women among the 22 most advanced economies in that year. But around the time of the recession, it began to drop, and by 2010 the U.S. fell to 17th place.
Possible reasonsinclude the relative lack of parental leave and child-care policies compared with these other economies, as well as the greater opportunity for part-time work.
There are appropriate concerns about the cyclical headwinds facing the U.S. economy, and the May jobs report does little to offset those worries. But policymakers and all Americans should also be concerned about persistent longer-run trends, like the continuing low rate of labor force participation.
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The best thing about the official U3 unemployment statistic is that it gives a low number.
How did the central bankers achieve the Great Moderation with rapidly rising housing costs?
The statisticians have been tweaking the figures to help policymakers meet targets.
GDP wasn’t looking too good after 2008 and so we (UK) added prostitution and drug dealing to the GDP figures. Nothing changed in the economy, but the GDP figure went up by 5%.
We even have two inflation stats.
RPI – the high number
CPI – the low number
The BoE targets the low number.
Student loan interest rates are based on the high number.
https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/Perfect-Storm-LR.pdf
Part 4 : Loaded Dice
Decline in low-skilled jobs? Possibly, or possibly not. New jobs have been created, those jobs are only financially viable to the employer due to low wages, and many of those jobs might be considered low skill
Here are some projections from 2016:
https://www.bls.gov/emp/tables/occupations-most-job-growth.htm
Those numbers are only projections but still, the second most expected job to be created is in fast food. And looking at the median-salaries then it looks to be a bleak future for most people in the growth-sectors…
Yea we hear “decline in low skilled jobs”, and then we hear “too many people have college degrees”, apparently everyone these days is supposed to be in the trades if they wish to be employed (“become a welder” it the the new “learn to code” since H1Bs destroyed the latter).
You make an interesting observation. I thought and hoped the trades might be better because it is more difficult to off-shore trade work like plumbing and HVAC. But I don’t know how many new immigrants, ‘legal’ and otherwise, are undermining work in the trades. A brother-in-law worked as an electrician and was often undercut by too many other electricians, union and otherwise, driving down the wages and available hours. I need to do a lot of re-thinking.
it happened to me…dead hip plus no parental leave, and i became Mr Mom.
been out of it so long i can’t think of a job within 50 miles that i could do( i’ll be disabled for ever) and that would be worth the doing/getting there>
simple cost benefit analysis.
even these sympathetic renderings of LPR usually give the latter consideration pretty short shrift. (there’s yer “rational actor”, right there.)
6 years out of work is a long time, too. and counts against you with employers.
continuing(although much better) disability is a strike, as well.(will i be able to move tomorrow?)
.this is a function of lack of healthcare when i needed it…another cost we’re somehow not supposed to notice.
most of the people i know who are similarly long term unemployed are there ultimately because of some medical thing.
Thank you for posting this Amfortas.
I came here to post about decoupling health care from employment and you would see drastic changes in these numbers. I know two people who went “underground” because of their health issues. These issues made them unhireable in traditional employment situations. If we decoupled employment and health insurance, we would see many changes in the job market. Most of them positive for the employee, which is why some will fight the changes necessary to separate work with health insurance with gusto.
the other part of it i’ve thought about a lot over the last, now, 12 years, is the failure to count so many things when figuring “worth”.
i felt an unexpected solidarity for housewifery(i am a poor househusband,lol) and for raising kids(surely, raising good humans should be, if not compensated, at least given the benefit of the doubt?)
and for all the myriad things i do around here that no one notices until i’m laid low by a hurricane for a week.
add in just being available for emergencies, caring for short term sick people, or having the time to cook from scratch.
there’s lots of “services” that economists routinely fail to notice or enter into their models.
-the failure to count so many things when figuring “worth”.
Yes this is important and a point upon which the 60s wave of feminism diverged and in some degree lost sight of and abandoned the home workers who received no compensation and no SS credit etc. in pursuit of equalizing footing in the workplace.
I hear ya, Amfortas .. as I too was/am a house husb. Stayed home with the kid for several years as the better half did the day thing bringing home the quatloos .. then, went back to work, which just basically covered the daycare !
Fast-forward several more years, I said f#ck it, quit the barely above min. wage job, made the abode presentable, sold it, moved (with the fam in tow, of course!) outta the ever growing hellscape that is California, to somewhere a little less crazy (so far). Fast forward a decade plus .. I indeed work, within the confines of our humble depreciating asset, our domicile. This year as an example, we’re gonna have sooo much in the way of fruit … with the addition of some vegies, that I’ll have extra to take to the local foodbank. Add to the larder, eggs, honey, and home-canned goods ..
…. but hey, haven’t been employed for years ! .. being the lazy no-good ‘job’ avoidin ‘retired’ mr. Fix-it, Grow-it, Wear-it-out-it, Creat-it lowly shlub that I am …
2008, and my lyin eyes saw how the future was gonna shake, so I began the process of scaling down some .. e. i. ‘to collapse first, and avoid the rush’, as J.M. Greer is want to opine.
At least, if nothning else, we won’t be caugh with our kitchen aprons down.
‘;]
i naturally lean towards autarky…from grandparents’ depression stories(one grandad didn’t even know it was happeningbecause the farm was self sufficient), to tolkien(imladris, gondolin, laurelindorinan), to just common sense(why buy it from way over yonder when we can make it here?)….
but 9-11 is what did it for me, and got me serious about building the Hidden Kingdom.
I’ve fantasised about being the secular analog of the monasteries after the fall of rome….or the “priesthood” in Canticle for Leibowitz
got a library and everything.
It sounds like you have been making big unmoney in the booming un-market counter-economy.
How many of the people leaving the Forced Market MoneyConomy Job-Market are doing nothing and losing all their meaning in life? As against how many of the people leaving the Forced Market MoneyConomy Job-Market are doing something new and finding new meaning in the Free UnMarket Counter-Economy?
How many of them are living out what could become the new hippie slogan Make Love, Not Money? How many of them are producing more actual wealth in terms of house-care, family-care, house-stead food, water, heating and cooling production, then they EVER got PAID to BUY in the Forced Market
Hamster-Wheelieconomy?
it’s a hard row, but the screech owl i spoke to a minute ago, on my evening snake hunting walk, said such things are unquantifiable, and that the Machine is therefore incapable of understanding them.
this is it’s weakness, of course.
carry the fire, and all…and light them in mens’ minds.
Right now (7:30 PST), I have an estimated multi thousands of honeybees hangin out on the front and one side of their abode, as it got kinda hot today (well, what counts as ‘hot’ here in western edge of the PNW anyway) .. I can put the back of my hand lightly against any portion of the ‘beard’ .. and they won’t sting .. and I’m in a tee shirt, shorts, and flipflops ! Now, I ask you .. is that cool, or what ! This is the reward for have a job being a gentle, and caring bee slave .. priceless !
Could be a prelude to swarming … we’ll see.
Pray the Machine-Lords never understand these things. Because if they understand these things, they will work to stamp them out.
I remember the Feminists demanding that “house-work” be valued in money. It never occurred to them that if “house-work” were to be valued in money, that it would then be taxed in money. And the tax payments would be demanded in money. I hope the Feminists have since begun thinking about that.
It is the same for suburban house-stead production of food, home-heat, home-cooling, home human-waste disposal, etc. If these things are ever admitted to have “value”, that “value” will be taxed by the MachineLords, and the taxes owed will be demanded to be paid in money. Do suburban house-steaders really want all these UnMarket CounterEconomy activities to be “valued” and TAXED by the MachineLords?
and that brings me back to the first season of “Black Sails”…Flint turns ’round on Billy Bones…”Civilization is coming!!!!”
like it’s the worst possible thing, because the middle men and bureaucrats come with the roads and social services.
similar to Gus McCrae to P.I.
on why we should chase buffalo:
“to be a human, free on the earth!”
we forget that it’s our planet, sometimes.
You might like this book: https://www.goodreads.com/book/show/7560659-radical-homemakers I don’t agree with all of the authors points but the basic premise that the tasks of building a home, raising a family, and engaging with your neighborhood can be a good substrate for radical change is interesting
It can be if “jusssst enough:” people take part. As the Czarist Army saying once said:
“Quantity has a quality all its own.”
https://www.amazon.com/dp/B00YTVPYV6/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1
One anecdotal item I keep a mental note of to gauge the real level of job market strength is the frequency with which I see pan handling. During the bubble boom years of the late 90’s pan handling in my neck of the country seemed to almost vanish. While the unemployment rate is not technically lower than the late 90’s, my visual notes say pan handling is now here near as low as the bubble boom years and I’d even say not exceptionally lower than 2009’ish.
I’ve noticed the same thing. I don’t think the level of panhandling has decreased at all where I live. In fact I even see panhandlers where I never have before, in a wealthy suburb for example. It’s rather disturbing when you consider how long this “expansion” has supposedly lasted.
Frontline reporter here, older would-be employee with skills and can’t get hired in the current system. Others in the same situation point to several factors:
1. Older employees are more expensive even at the same pay levels due to benefit costs.
2. Younger employees are seen as better long term investments since more malleable.
3. Automated resumé systems assign points for various factors, possibly discriminatorily.
4. HR outsourcing of candidate screening means your hiring can be prevented by robots.
5. Experience and wisdom are less valued in a high time preference system. What you did last month is less important than what you did last week or yesterday, so don’t expect acknowledgement of what you did last decade.
6. Yes, there is bias against groups.
7. Neo-liberalism, baby.
Bias against groups? As in, those of us who are over 40? I’ve seen it and I’ve experienced it. And I think this bias can explain a lot this “stopped looking for work” trend.
Regarding Number 2 factor, In my early 50’s I interviewed for a position in a firm I used to work in where I was told that the last person who held that position was there for 25 years and we want somebody who is going to be there for a long time. As one of two finalists, I didn’t get the gig. FWIW, a female in her early 40’s, with fine qualifications, got the position.
This firm has also engaged in replacing older retired employees, or experienced employees that have gone on to other firms with younger 20 somethings at close to minimum wage.
Yes, likewise here. Remember when all the laid-off factory workers were to get jobs in software? I came another route; from engineering into software and worked at high levels for many years. 2008 hit and employer looked around to cover vanishing sales and keep their executive bonuses. Bingo! One third of my department laid off, all over age fifty, and foreign “guest workers” took our desks. Have I mentioned unwritten company policy, under threat of termination, requiring two executive level approvals to hire anyone past mid-forty? So, despite current and prodigious skills, I remain unemployed. Funny that despite constant propaganda about “skill shortages”, corporations simply refuse to hire from my age group.
Meanwhile, the foreign guest workers remain and largely comprise entire suburbs in DFW. When the H-1B received some attention, corporations shifted their visa abuse to OPT, L-1, B-1, etc. which have no wage requirements or numerical caps (much less a labor market test, ha-ha). The software profession is the US has been decimated by this process while minting seven billionaires for India. Without change, other professions will no doubt soon follow.
I whole heartadly agree. I have been playing the game since 2002 in the insurance industry. It is almost all Indian firms running the IT departments now. What makes it worse is people somehow magically start disappearing in their 50’s anyway so the problem is compounded with the outsourcing/offshoring of the work. I hear engineering is going through similar problems.
My first experience of seeing what happens to people in their 50’s and early 60’s was back in 1983-84 at the company I worked at where everybody over the age of 50 was given the option of taking an early retirement or have the distinct possibility of being laid off within the next 6 months. Most if not all took the early retirement. I have always kept that in the back of my head as the years have gone by.
For the last 22 years I have been a consultant working for a number of insurance companies and I can usually count the number of employees at a company over the age of 50 on one hand that work in the IT department.
Between 2002 and the present I was out of work for 6 of those years and when I do work it is at a substantially lower rate. It’s been the Gig economy for me that’s for sure.
You must live in Plano :-)
I worked at Parkland hospital in Dallas for almost thirty years. In the late eighties our checks were short. When we asked why they told us that RN’s were now considered management and we would be paid straight time instead of overtime from now on. Also we were paid nothing unless we stayed at least an hour over. Naturally the program was counterproductive regarding recruitment of American nurses. Much of the shortfall was made up by recruiting nurses from Kerala in South India. Certainly they are good nurses, that is not the point. During those days about one third of all the money that the hospital took in went to administration.
How does self-employment, particularly in a small business like a solo attorney, or small mechanic’s garage, fit in? Are such ways of earning a living counted as being employed or unemployed, especially in light of the fact that when a self-employed person’s income declines due to factors out of such person’s control, the income declines in the same way as does the income of a person who is laid off by a larger scale employer, yet the self-employed person is ineligible for unemployment insurance, while the laid off person is eligible?
There are reportedly (sorry, no ref) millions of us supposedly self-employed who are actually under or un-employed. Contractors, the legacy of the 90s.
We are all counted as fully employed and in the labor force. And, as you say, inelibible for assistance. So, I wonder what the real numbers would be taking this into account.
As the first commentator alluded to, the main reason for falling labor participation at the same time as falling unemployment is that governments and media (at least the US and UK) lie about the unemployment rate but for some reason not about the lesser known labor participation rate. Many of these “discouraged workers” are flat out unemployed.
While this explanation is sufficient, another factor that is not brought up is that employers have gotten so good at squeezing wages that there are quite a few jobs where the employee actually loses money in the first year if he or she takes one. And I am not talking about losing benefits, I am also talking simply about commute costs (commutes have tended to get worse during this period) and other costs assorted with getting and keeping the job. If you add commute time to the hours work and deduct the cost fro the wages, the hourly wages of many jobs fall to the point where they are not worth taking, the prospective employee is better off staying at home in hopes that something more suitable turns up. Especially as there is a good chance of being laid off/ fired before he or she breaks even on the job.
Congress-critters only read the unemployment rate.
Who are they lying to? They’re not lying to you, Ed, or your spouse, or your children, or even your friends — they all will go by their local statistical sampling. So, who are they lying to?
Who was Pravda lying to when they said that everyone was getting chocolate and unicorns? Not to people who didn’t get chocolate!
I think it’s a critical point about how the system works — the propaganda in the media isn’t aimed at average workers, or soldiers, or the unemployed or… all these people will quite literally and directly see the truth of the matter. So who then?
the top 20% (may well be 30%)?
They of the full time jobs with benefits who were maybe not unemployed in the great recession, the flying all over the world for vacations never mind the carbon. etc.
Yea, probably are the people who can be convinced things are good and maybe serves a purpose to do so. Of course there are silly Trump voters who think things are good too, but they probably often fall into that income group AS WELL.
The Washington bubble may be real. Honestly suspect a propaganda bubble purposely aimed inward on Washington DC. Believe I have seen the telltale signs. Technically not that hard to implement. And especially effective when media relations firms align with corporate lobbyist walking the halls of government.
Has anyone else noticed this dark shadow or have insight?
If everyone within the Beltway thinks they are smarter than everyone outside the Beltway, it is easy for Beltway-targetting mind-managers to learn Beltway Language and write their propaganda in that language.
Since the Beltwayvians are too proud to think anything not written in Beltwayvian is worth reading, they would never know that they are surrounded by a bubble of their own making made of one-way-mirror-glass with the mirror-side facing them. Managing inputs reaching the Beltwayvians would be very easy to do.
Since I am not an economist, my ignorance is showing. Is there an indicator of “full time equivalent jobs”? Currently if an employer splits a full time job into two half-time jobs, we seem to log that as “one job, one person employed (before) and “two jobs, two people employed (after).” If we measured the number of full time equivalent jobs as a fraction/percent of the working age population, would we not have an indicator, over time, of how well we were employing those capable of working?
Quite right, but you seem to assume the measures are intended to truly measure an unhappy number, growing more despairing with time.
there has been quite a bit of improvement in involuntary part time employment lately.…the number who reported they were involuntarily working part time fell by 299,000 to 4,355,000 in May, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 7.3% in April to 7.1% in May, the lowest since December 2000….
and also, because a job is such an important part of a person’s identity, their overall well-being.
Substitute “working” for “a job” and I agree.
I’ve worked without having a job (or income from the work) and I’ve had jobs where management seemed indifferent to the accomplishment of real work so I find the conflation of work with having a job odious and suspect.
As for economic benefit, economic justice could accomplish the same and more without nearly so much wage-slavery.
Who doesn’t know that these numbers are all rigged? People who have given up looking aren’t even counted. People who work one hour a week are considered fully employed. The jobs outlook has been dismal for some time and will probably get worse. Aside from jobs at fast-food places, there’s always openings for nurses and home health care workers. And I assume that climate change might create more jobs for mop-up crews….
When Trump ran for president he mentioned that the unemployment rate was not accurate as it discounts many actual people that don’t have a job and people not actively looking for work. The unemployment rate as a result is intentionally artificially lower than it really is. Now that Trump is president he loves this phony number since it makes him look good regarding the economy.
We need a stat that reflects jobs that pay above the poverty rate as ’employed’ and count those under as ‘unemployed’. Also if you have two or more jobs only one would count. Bet that ‘unemployment’ rate would jump up fast if that happened.
Is that six million additional people no longer in the work force, or six million total?
Yves, I love you, but please stop publishing articles by people who don’t know anything about the labor market.
Yes, the labor force participation rate has declined by 3 percentage points since 2005-2008 (it averaged 66.0 percent in three of those years), but demographics alone account for two thirds of the decline. Labor force participation drops off sharply above the age of 55, and the percent of the working-age population aged 55 and up has increased from 30 percent in 2007 to 36 percent in 2018. If you apply 2018 labor force participation rates by age group to the 2007 age distribution, you get a labor force participation rate of 65.2 percent, a much smaller decline..
This phenomenon is well known among labor market economists. Also Bill at Calculated Risk frequently runs columns on how aging affects labor force participation rates, the growth rate of the labor force and growth in GDP.
Has there been some erosion in the participation rate for younger and prime-age workers? Yes, but a drop of 0.8 is not the same as a drop of 3.0. This isn’t to say that crappification of the labor market hasn’t occurred–crappy wages, crappy benefits, cost of health care shifted onto workers, contingent jobs, high cost of childcare, absence of affordable housing etc. are all very real.
I just object to crappy analysis just like I object to crappy wages.