Non-Employed, But Available at the Right Price

Why is unemployment so low if the economy is sputtering?:

Unemployed, and Skewing the Picture, by David Leonhardt, NY Times: ...This Friday, the government will release the latest employment report... Wall Street forecasters are predicting that the February unemployment rate will have inched up to 5 percent, from 4.9 percent in January.

Whatever the survey ends up showing, however, you can be sure of one thing: Politicians will be quick to point out that joblessness remains low by historical standards. “Five percent is still a low unemployment rate,” Ed Lazear, the chairman of President Bush’s Council of Economic Advisers, said recently. ... The president and Senator John McCain also recently noted that unemployment remained low. ... Statistically, all this is true enough. But it’s also deeply misleading.

Over the last few decades, there has been an enormous increase in the number of people who fall into the no man’s land of the labor market... These people are not employed, but they also don’t fit the government’s definition of the unemployed — those who “do not have a job, have actively looked for work in the prior four weeks, and are currently available for work.”

Consider this: the average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s. Yet the percentage of prime-age men ... who are not working has been higher than in any decade since World War II. In January, almost 13 percent of prime-age men did not hold a job... Even prime-age women ... aren’t working at quite the same rate they were when this decade began. About 27 percent of them don’t hold a job today...

There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate.

The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.

If growth in this group were the reason for the confusing statistics, we wouldn’t need to worry. It would be perfectly fair to say that unemployment was historically low.

The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation.

Various studies have shown that the new nonemployed are not mainly dot-com millionaires or stay-at-home dads. ... Instead, these nonemployed workers tend to be those who have been left behind by the economic changes of the last generation. Their jobs have been replaced by technology or have gone overseas, and they can no longer find work that pays as well. ...

These nonemployed remain a distinct minority of the population. But the growth in their numbers is one reason that overall wage growth has been so weak lately. With such a large pool of people who aren’t employed — but willing to work for the right price — those who do have jobs find themselves with less bargaining power. ...

I’m not suggesting that the government change its definition of the unemployment rate after all these years. ... I’m also not suggesting that the Bureau of Labor Statistics somehow cooks the books. Both Republican and Democratic economists praise the bureau as a model of professional nonpartisanship.

Yet there is no doubt that the unemployment rate is a less telling measure than it once was. It’s simply no longer the best barometer of the country’s economic health. A truer picture can be found elsewhere, by looking at compensation growth, for instance, or to changes in the percentage of the employed.

No less than Tom Nardone — who, as the economist overseeing the unemployment survey, ... made a similar point to me the other day.

“Just saying the unemployment rate is 5 percent, without any other context, really doesn’t tell you much,” Mr. Nardone said. “It’s far more complicated than that.”

There has also been a big change in the participation rate of teens. More on participation rates here, here, and here.

Comments

[odograph]

To coin a phrase it is "Rich slacker, poor slacker?"

All of these effects will shake out in net-worth changes. I sense that there have been an increase in rich slackers, but also (yes) poor slackers. One occupation for rich (middle class) slackers I know was to get into home-flipping. A bit of a double whammy there, not to be making your usual income and then get caught out with an extra house.

This, and the whole debt/income thing, will shake out in household net worth changes. I guess the problem is that those statistics are rarely tallied? In census?

[spencer]

I keep looking at all the comments on the conservative -libertarians blogs about Wal-Mart when you get a news report of thousands of people showing up to apply for jobs at a new Wal-Mart. They claim it shows that Wal-Mart is a great company. Maybe, but I think more what it shows is the hided unemployment -underemployment in the economy. If the economy were creating a lot of good jobs at the bottom end of the distribution, thousands of people would not apply for the new jobs at Wal-Mart.

[Noni Mausa]

What effect does the huge US prison population have? I don't imagine prisoners are listed as employed -- are they listed as unemployed? Not by the above definition, “...do not have a job, have actively looked for work in the prior four weeks, and are currently available for work.”

Interesting chart of US prison growth here: http://en.wikipedia.org/wiki/Prisons_in_the_United_States#Population_statistics

Noni

[paine]

the dynamics of our "informal economy"
are a third leg to the stool
maybe guys and gals are making a move into
the under the table sector

god bless
we still got cold cash
that uncle so far ain't put trackers in ..eh ??

[Vader]

Take a $8 job, common rate for out of work folk without critical skills. Thats $320 week. Take out 25% for taxes and SS. Thats $240 week left. Now figure transportation at $50 a week. Figure $20 for lunches, clothing and such at $10 a week. Thats $160 a week or $4 an hour net. If you have had a spot of bad luck then expect garnishment of that or if you got to pay for child care, it is all gone from the get go.

So faced with working hard to starve slowly or not working to starve a bit faster what do you do.

[johnchx]

Noni Mausa asks:What effect does the huge US prison population have?

For employment-to-population ratios, the population base is the "civilian noninstitutional population," which excludes residents of prisons (and, I think, institutions like mental hospitals), as well as the uniformed military. For the unemployment rate, the treatment is basically the same: prisoners are excluded from both the labor force and the number of unemployed. (I'm not absolutely certain, but I think prisoners employed in prison industries and in the internal operations of prisons -- laundry, food service, etc. -- are simply ignored.)

[Donald A. Coffin]

And while the overall labor force participation rate has declined somewhat (and the LFPRs for teens have plunged)--the participation of older americans, especially older males, has increased.

The LFPR for males, age 55 - 64 bottomed out in March 1994 at 64.5% (down from 89.7% in January 1948). As of January 2008, it was 70.4%. The last time it had been this high was in October 1982.

For males age 65+, participation rose from a low of 15.9% in August 2005 (down from 45.4% in January 1948) to 20.4% in January 2008, a level not reached since December 1978.

I think these increases are also worthy of note, because they suggest something fundamental has changed--just as the overall LFPR decline does, just as the plummeting participation rates of teens do.

[spencer]

Interestingly, the teen age participation rate has a very strong correlation with the real minimum wage.

[ken melvin]

W/ everything considered: all the above, illegals, ..., the actual unemployment rate is at least 12%, probably 15% and maybe even 20%.

[donna]

My children refer to me as a "professional slacker" With great admiration, unfortunately.

Our problem is if I work, we get hit with AMT, and it ends up hardly being worth it. So mostly, I don't, unless I get a really good consulting gig.

So I do therapy work with my golden retriever. It's more fun anyway.

[donna]

Oh, and when the kids were little, I ran the numbers, and after taking out everything including the childcare, transportation and clothing, etc. I was making 12K a year from a 40K salary (that was 16 years ago). So I stayed home when they were little and went back to school for my MBA.

I think if people really looked at what they made per hour after figuring it all out, they wouldn't be so eager to be working either.

[johnchx]

I think that the most telling sentence in Leonhardt's article is one which Mark T. happened to omit: (The government has tried to come up with various alternate measures of joblessness, which are broader but not especially useful.) Hmmm. What do you suppose those "not especially useful" measures might include? Well, how about "U-4, Total Unemployed plus Discouraged Workers?" That is, how about a measure of unemployment that includes both those actively looking for work and those who have given up because they don't think there's work to be had? Or, to put it another way, a measure of unemployment that addresses exactly the issues that Leonhardt raises.

Why, you might ask, is this measure "not especially useful?" Well, it's not useful to making the case that the official unemployment rate vastly understates "true" unemployment. That is, pesky facts don't particularly support the "theme" of Leonhardt's article. In January, 2008, the official unemployment rate stood at 4.9%. The unemployed + discouraged rate was 5.2%, 0.3 points higher. Now, since 1994, the differential has fluctuated between 0.2 and 0.4 points; 0.3 is a bit on the high side, as you might expect, but it's more-or-less in line with the past fifteen years. Moreover, it cannot possibly indicate a massive change from the more distant past, because the number of discouraged workers can't ever have been below zero. So at most, assuming that there were no discouraged workers in 1967 (or whenever Leonhardt imagines the official unemployment rate didn't distort reality), the maximum "distortion" amounts to about three tenths of a percentage point. (In absolute numbers, the BLS estimates 467,000 discouraged workers in January 2008, out of a civilian noninstitutional adult population of about 232.6 million.)

So, if the vast (and brand new) hordes of discouraged workers are a figment of Leohnardt's imagination, what's really going on? The clue is here:Yet there is no doubt that the unemployment rate is a less telling measure than it once was. It’s simply no longer the best barometer of the country’s economic health.

Um..."no longer" the best barometer of the country's economic health?

Here's my problem with this: there's a very good article to be written on this subject, explaining exactly why there no single "magic number" that says, "economy OK!" or "economy bad!" In fact, there's an excellent article to be written debunking the whole idea of "economy OK" vs. "economy bad" thinking. It is more complicated than that, and the right indicators to watch depend a lot on what you care about. A really useful piece of journalism would talk about the things we might want to care about, and how we might "keep score" about those things.

Wouldn't it be interesting -- even empowering -- if the major newspapers made it their business to help people understand stuff like that?

[cm]

From my vantage point (nominally white collar office critter), I can recommend this Dilbert cartoon to summarize my take.

In the labor market segment where my "skills" are relevant, the "good" jobs are filled largely by "closed" networking, jobs that are entry level or that are perceived as commodity are (still?) shifted abroad, and many public ads either serve as posturing ("we're hiring") or show a sometimes bizarre discrepancy between credentials/years of experience, job description, and laundry lists of specific "skills".

I know from some people not in my immediate field who have interviewed for jobs, had previously waived "plus skills" requirements reinstated when they didn't want to budge on pay, and some of those jobs are still unfilled after a half to full year.

If jobs not being filled with adequate candidates, or restraint in broad staffing efforts, are not strong indications of soft labor markets, then what?

says...

"For males age 65+, participation rose from a low of 15.9% in August 2005 (down from 45.4% in January 1948) to 20.4% in January 2008, a level not reached since December 1978.

I think these increases are also worthy of note, because they suggest something fundamental has changed--just as the overall LFPR decline does, just as the plummeting participation rates of teens do."

Yes something very fundamental is changing that has been going on for millenia. People are living longer. Measuring someone in terms of years since birth, as opposed to years until expected death creates distortions. As we live longer, we need to work longer to support our slacking years in retirement.

BTW, since 2000 the percent of the population 60-64 rose from 3.85% to 4.45% and will continue to rise sharply as the 55-59 age group is more than 1% higher today than it was five years ago.

[cm]

donna: With all due respect, if AMT discourages you from pursuing a job, then I presume you just are not particularly eager to work (not a criticism). Most of the people complaining to me about AMT are "hit" with it because of that mortgage and property tax deduction, which we renters don't get.

[donna]

And lots of the older but not quite retired people are working just for health care benefits. I cringe to see them in what ought to be the kid's entry level and service jobs. Meanwhile my 20 something and his friends struggle to find a job at all, the best any of them can find is night manager of a casino cafe. Big whoop. When I was in my early twenties, I was starting my professional career, even in the "bad" job period of the early eighties. Those jobs seem to be mostly unavailable right now.

Although at the teener level, Target is hiring a bunch of them right now and letting their more senior people go to lower salaries. That makes me mad too, since some of those folks have been their at least ten years and are very good workers.

A friend in LA has been out of work over six months, is losing his unemployment, and is either "overqualified" or his job skills are "not current" after being laid off from his job after 20 years. Whatever.

Yeah, it's a really screwed up job market, all right.

[donna]

cm,

I wouldn't say that. I would like to be working, but I like to feel like it is at least worth my time and effort! If it's a choice of money going to me or to the government, I'll pick me. I don't see much point in working for them.

[Callahan]

Bad as it is, Northern Mexico (USA) still looks pretty good to many from Southern Mexico (Mexico).

H1 visas are doing pretty well too.

Yup it's a wunnerful wirld, wunnerful.

[me]

And what is the unemployment rate in the US when compiled the European method? closer to double than not?

[Keith]

"They claim it shows that Wal-Mart is a great company."

No, but it does show that Wal-mart offers higher wages than they "have" to. If Wal mart wanted to, they could offer lower wages, and just hire whoever actually shows up. Even if you say Wal-Mart's wage of $7.50 is low, Wal-mart could get away with paying even less and still have workers show up, but they choose not to.

Instead, Wal-mart offers high enough wages to attract a lot of people, so they can have their pick. Apparently, Wal-mart follows some sort of efficiency wage strategy, where you offer a higher than market wage to get your pick among the extra applicants, so you get better workers.

Whatever's driving Wal-mart's labor strategy, it's not just a straightforward minimizing of the total wage bill.

[Jon]

The unemployment rate is a better sign of our place in the business cycle than if we factored in hidden unemployment, which reflects more long-run trends.

I disagree with the article's implication that hidden unemployment is not 'by choice' and that the unemployment rate is a misleading measure.

More complete response here.

[Lord]

With such a large pool of people who aren’t employed — but willing to work for the right price — those who do have jobs find themselves with less bargaining power.

But they would find themselves with even less if they were willing to work at any price. The right price is above current pay, so if anything, their unwillingness increases what the rest are able to obtain. Yes, it is a matter of choice as only the desperate look for work. I just don't see making more people desperate as any improvement, even though more people working by their own choice would be.

[James Killus]

There's also the "gray" and "black" economies, which is to say people earning a living "off the books" and people earning a living via outright criminal behavior.

Crime drops during times of high employment, go figure. So does suicide.

[Gerard MacDonell]

"The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation."

In the passage above, the use of the term "good" evacuates any meaning from the proposition by making it nontestable. It may well be that economic results in the Bush economy are unfair (also untestable). I too hate Bush (testable). But "good" is not helpful analytically, as you well know.

Why oh why can't we have a more rigorous liberal blogosphere? Shouldn't we leave sentimental, faith-based, nonsensical, meaningless appeals to pre-existing biases to the right, who are mucuh better practiced at such deceit? Just asking.

[Patricia Shannon]

A few years ago, my niece couldn't get a job for her level of education, so she went to graduate school. So she wasn't counted as unemployed, but she wanted to be.

[Steve J.]

A couple of years ago, I applied for a job as a secretary's assistant. When I dropped of the application, the secretary told me that she had gotten over 100 applications.

This job paid $8.25/hr.

[cm]

donna: I understand the arithmetic of progressive taxation (AMT being just one mechanism thereof) and how it affects "extra" household incomes.

However if one were to run the numbers I suspect the impact of AMT is not so large as to make or break it. You essentially will have to pay about your marginal tax rate that you would get without your AMT deductions for the extra money.

In the end it comes down to whether you want (and need) to convert your spare time into a particular amount money (and healthcare insurance) at the expense of whatever you would have to put up with. Looks like you have the comfort of "choice".

[reason]

Gerard MacDonell,
I agree with your sentiment, but I would think in this case a "good" job is whatever the potential worker would find acceptable and that is testable. How realistic that view is, is a totally different question, but I contend it would over time become more realistic.
Personally, I am of the view that we are too complacent about labour market micro-economics. I think we really need to look harder about standards for working hours and holidays, but also about ways to encourage more in-house training - looking at ways to foster both employees and employers desire for stability without impacting freedom of choice and movement excessively. There is no doubt that the asymmetrical power and information position of employers wrt employees has and is leading to exploitation.

[cm]

reason: One other thing to consider is specific "micro" labor market failures like the phenomenon that usually goes by the moniker "age discrimination" (which is really discrimination against suspected lack of gullibility, "passion", and naive can-do attitudes that come from absence of technical and office-political experience, and presence of other non-work priorities in life, to all of which age is only a proxy), and refusal to invest in and train workers (which is partially rational in a prisoner-dilemma way as nobody wants to be taken advantage of by "defectors" and be relegated to being the competition's de-facto training business).

The latter can be addressed e.g. by a German-style "train or pay" system, or by company pension plans (when I come to think of it, the big problems with (experienced) employees jumping ship every few years probably started with the removal of pensions).

I'm not sure how to address the former short of forcing employers to manage personnel by age quotas.

[reason]

cm...
Training bonds would seem the correct solution. (That is a solution like football's - i.e. soccer's - answer to certain EU cases - long contracts that can be bought out by a new employer - or the employee themselves). That grants security to both sides at the cost of reducing the employers bargaining power. I wonder why it hasn't happened? (Ever noticed how football clubs are screaming about the law that stops them treating players as serfs?)

[dirtyal]

I don't believe any of the "statistics" that come out of Washington. Between their "propensity to say things that make them feel better" and their tendency to compute their metrics based on outdated assumptions, the numbers are not very good. They certainly don't seem to be consistent with empirical evidence, whatever that may be.

I feel bad for the people who want to work but can't. After having worked for nearly 40 years in the same industry, it was hard to find my latest job. The salary is not as high as it was ten years ago, and the benefits are not quite as rich. But it sure feels good to go to work every day and to get that money in the bank a couple of times a month.

The whole idea of a "willing worker" has changed. I am skeptical about the ability of the statisticians to capture that change.

[cm]

reason: If by "bonds" you mean that the receivers of the training are indentured, then the quality and content of the training has to be monitored by independent boards, which they probably have to anyway when provision of training can be exchanged against fees.

[Real Person from the Real World]

I note this:
"nonemployed workers tend to be those who have been left behind by the economic changes of the last generation. Their jobs have been replaced by technology or have gone overseas, and they can no longer find work that pays as well. ...

These nonemployed remain a distinct minority of the population. But the growth in their numbers is one reason that overall wage growth has been so weak lately. With such a large pool of people who aren’t employed — but willing to work for the right price — those who do have jobs find themselves with less bargaining power. ..."

I work for a 3rd world entrepreneur in staffing. I see consultants both h1b (beloved of the 3rd world staffing companies, since they are bought and sold like serfs) and Americans.

This week alone, I placed 2 Americans, and we had to make special deals to pay them upfront, because they were out of money, and these are 60 and 80 per hour people. This tells you something about the feast/famine life of the new middle class tech worker.

Meanwhile, I struggle with 12 per hour and no benefits (oh, and I have an MBA, and an Assoc in programming). My employer started me at 8, but could not get other people to work at that, 4 years ago.... now we are looking to hire at 10 per hour to help me! Shit! This a_hole built his business on my back, and now he will keep me low still, to keep me working as many hours as possible, and hire new people at a rate he should have paid me when I started!

Then there is the testing that some people have to go thru to get a job. Home Depot has a test, for example. If you don't hear from them, why not? was it because you failed the test? or too many people for them to cherry pick, and the test is an excuse? Read: The Cult of Peronality, by Annie Murphy.... most of these tests are misused, and the creaters themselves, probably would have trouble passing them to get employed. Frankly, these tests are just another way to handle hiring who you want, and weeding out.

I think we are getting too good at weeding job seekers out. There was an article in the NYT recently, about job seekers with college, having problems getting jobs because of credit ratings!

We need to stop treating people like commodities. We need to encourage US companies to train and to create entry level. We also need to get rid of these non-productive middleman foreign owned employment companies that import workers for tech jobs and CREATE a void of US citizens with those tech skills. My local college is shutting down tech classes because no one is taking them anymore!