The US Unemployment Situation is Deteriorating, Not Improving

We are hearing the government announce a reduction in the national unemployment rate to 6.7% as of February 2014, and this is celebrated as a dramatic improvement from what we had back in 2009. But the official figures of unemployment hide the fact that millions of people have given up looking for work. The government usually only reports the U-3 unemployment figure, which is the official civilian unemployment rate, which takes the fraction of those people who are unemployed AND have searched for jobs within the last four weeks over the total labor force. The labor force by definition would exclude homemakers, prisoners, children, seniors, disabled and any unemployed person, who has not been looking for work in the last month. The broader figure is called U-6, which includes part-time workers, who want full time job and the discouraged workers, who have not sought for jobs in the last four weeks. Here the rate is 12.6%. Still high, but lower than in the depth of the 2009 recession. But some estimates might even go higher than that, though it will be difficult to quantify this properly when the government bureaucrats don’t do it.

So I went to the Bureau of Labor Statistics, and reviewed some employment and unemployment data for sales and office workers, and then for the total labor force to examine how healthy our labor market really is. And my conclusion is fairly pessimistic. The labor market is worse today than it was in 2007.

So I went to the BLS website. Then I selected the sales and office occupation and then “retrieve data”.

The interesting fact is that the unemployed numbers look better than the employed numbers. At 2.5 million unemployed sales workers we are better off than in say 2010 (3.3 million), but still worse than before the recession, when it was less than 2 million. The employed number peaked in 2007 at over 36 million, but has since been reduced to 33 million with only a slight recovery since then. Well, if the unemployment numbers increased by a net value of 500,000 (2.5-2 million), and the employment numbers drop by a net value of 3 million (36-33 million), then we see an exodus out of the sales industry of 2.5 million jobs.

One would hope that some of these people find work elsewhere, but that is anything but assured. I picked retail, because this is one of the largest sectors of employment, which is about 10.2% of the labor force, though that is projected to decrease. The question will be whether other branches of employment will do much better to absorb the retail workers, who have been losing their job. Examples are in the professional business field, health care and social assistance. But these tend to be higher-skilled fields, while retail is lower skilled, so without some retraining the shift will not be smooth. Regardless, the larger point is that so far retail workers are leaving the workforce, and it is not clear where and whether they are coming back into the labor market.

To examine this question further, I looked up the same numbers for all workers in the US. The peak employment of the labor force was 146 million in 2007. The bottom was 139 million in 2010 and the current level is 144 million as of 2013, so we are still 2 million jobs short of 2007.

Notice too that our population has grown ever since. According to the Census Bureau we had roughly 300 million people at the beginning of 2007. We had about 315 million people at the beginning of 2013, and 317 million at the end of the year (which is the latest available data), but let’s take the 315 million figure. An increase of 15 million people from a base value of 300 million people gives us an increase of 5% of the population. Now take the 146 million workers we had in 2007 and divide them by the 300 million population in 2007, and we get an employment to population ration of 49% (might be off a bit, because I picked an arbitrary date for the population numbers: January 1, 2007). The same exercise for 2013 is 144/315= 45.7%. We have a 3.7 percentage points fewer workers as a proportion of the total population in 2013 compared to 2007. I guess this is called a labor market “recovery”.

There certainly is no recovery for the workers in the US. Branko Milanovic’ (2012) research points out that workers in the rich, developed countries have not seen their incomes increase in the last decade. The labor share of national income has been decreasing in all developed countries over the last 40 years as part of the neoliberal strategy to reduce overall labor costs to help boost profits (Kotz 2008). Corporations are writing record profits.

In the mean time, governments are pursuing Darwinian social policies in the form of austerity, which means less funding for universities, research, education, social services, health care etc. This will exacerbate income inequality further. Research by Thomas Piketty (2014) finds that over the long term capital growth exceeds growth in the real economy, which diverts more and more investments from the real productive sector into the fictitious sector of finance capital, which in the mean time forms a real wealth increase for the rich in the world.

This finding is even more disturbing than the current views on inequality. The current popular view about inequality is that we should not worry too much about it, because having a little bit of inequality will be beneficial for society, because people have more incentives to work harder (e.g. Bell and Freeman 2001). Others suggest that average incomes for the poor have really increased even during the last few decades when inequality was increasing. Rather than opposing inequality we should be attacking a lack of social mobility instead (Winship 2014). In any case, the improving signs of the economy in the form of higher corporate profits, and rising payroll should make us more content about current social and economic trends.

One look at history should make us reconsider this position: the current recession is the most tepid in terms of job recovery since the Great Depression. There is recovery mainly in the stock markets, not so much in incomes and jobs for working people. Having a little bit of inequality may not be problematic, and may be necessary to provide incentives for work and effort, but the current scale of inequality is far beyond what is economically or morally just.

Measured by purchasing power most workers have not seen their living standards improve at all. Median incomes for households has decreased from $63,517 in 2000 to $55,640 in 2011. So the argument that working people have seen their lives improve is also false. More income inequality is associated with less social mobility, and, therefore, raising social mobility requires conscious political efforts to reduce the gap between the rich and the poor.

I very much doubt that any sort of improvement in social mobility is feasible so long as the level of inequality is high. By the same token, I also doubt that we are going to magically see a huge jobs recovery in the near future. There are enormous barriers to a jobs recovery, such as the scale and speed of technological innovation (Brynjolfsson and McAfee 2012; Collins 2013), continued application of austerity policies, and lack of aggregate demand (partly resulting from inequality, see Stiglitz 2012Reich 2014).

Some people argue that there is a skills mismatch (i.e. unemployment results from workers not getting the skills the employers ask for), which I don’t find very much valid (also see Baker 2012Cappelli 2012). There is this argument that too many people lack an education relative to what the labor market requires (Goldin and Katz 2010). If skills mismatch had been such a great problem, then the wages of workers would be bid upward, and many more people would be willing to undergo training to fill these jobs. But for most professions we see a stagnation of wages, and continuing education credentialing whereby more and more workers are receiving college degrees (Collins 2002) .

This points more toward an overqualified rather than an underqualified workforce (Vaisey 2006). More than 9 million people in America have a STEM degree (science, technology, engineering and math), but only 3 million of them have jobs in those same fields (Eisenbrey 2013). The fact that the student loan mill is saddling more young people with more debt will certainly not do much to help the jobs crisis (though it might alleviate some tensions through college employment).

It is certainly politically more convenient to blame a lack of training for the lack of jobs, because it implies either that all we have to do is to tinker a little bit with the education system, or that we can blame the employment issue on the current young generation for their failure to undergo the “right” route of training and education. The former point is ridiculous, because trying the same solution when it didn’t work, will not work in the future. The latter point is cruel and false, because telling young people to blame themselves for structural forces that are beyond their control will not help them to participate meaningfully in the public discourse concerning- what is after all going to be their own- employment and their own future. It will instead demotivate them.

Now what are the solutions? If there is such a huge jobs shortfall, as we are currently witnessing, then there needs to be a political entity that needs to be willing to fill that jobs gap. That implies that we need more government investments in direct job creation, which is precisely what happened during the Great Depression under the New Deal.

Critics of the New Deal policies usually argue that the public-sector jobs program has not created much employment, but that is not true. The Works Progress Administration alone had created 8 million jobs. The other programs also significantly reduced unemployment. The recession of 1937 raised the unemployment rate slightly, but that was because Franklin Roosevelt had insisted on undermining the recovery by focusing too much on deficit reduction (Brinkley 1995).

There are enough historical precedents to show us that a federal jobs program might actually help to lower unemployment, but unfortunately there is not much enthusiasm for such job creation schemes at this moment. Back in the 1930s, the whole world was in uproar, because the Great Depression had helped the fascist and communist cause, and capitalism was challenged as a political project around the world. The prudent capitalists joined the ranks of the labor and social democratic parties and promoted Keynesian policies of active public investments financed, in part, by taxes on the very wealthy, whose fortunes declined particularly during WW II.

As of yet, we don’t see this sentiment coming back. But if history should be any guide, we should be aware that despite the limitations in current public discourse with regard to what the society can do to alleviate the scourge of unemployment, there are at least real alternatives that exist to the current policy that creates unnecessary burdens for working people.

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One Response to The US Unemployment Situation is Deteriorating, Not Improving

  1. Pingback: The US Unemployment Situation is Deteriorating, Not Improving | The Spectrum

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