In a June 6 speech to the World Affairs Council of Philadelphia, Federal Reserve Chair Janet Yellen said that the U.S. economy was “now fairly close to the … goal of maximum employment.”
At a jobs fair held in Newburgh, New York, on Oct. 5, Drew Smith begged to differ. A former stock broker and trader for 27 years, Smith has been unemployed and looking for work for four years. The full parking lot he surveyed as he walked into the fair reinforced his belief that the unemployment rate is much higher than the official numbers.
he Bureau of Labor Statistics (BLS) said unemployment in June was 4.9 percent—the figure Yellen had in mind when she said the United States was close to maximum employment. In the September jobs report, that figure inched up to 5 percent.
In the gap between Yellen’s and Smith’s unemployment estimates lies an unacknowledged catastrophe, as tens of millions of Americans either can’t find or have given up on looking for work. This crisis involves two distinct problems: There are large numbers who are looking for full-time work but can’t find it, and there are large numbers who have accepted not working as a norm.
This group of the non-working has been almost invisible to society, but it presents unique problems. Having a large number of adults give up on work weakens the economy and represents a staggering waste of human potential.
To begin to understand this story, one first has to look at the numbers.
The unemployment figure Yellen referenced is called the U3 unemployment rate. It measures everyone who has actively sought a job in the past four weeks and is what people most often refer to when they discuss the unemployment rate.
In a letter published on his company’s website, Jim Clifton, the CEO of the Gallup polling company, called the U3 rate “extremely misleading” and “a big lie.”
Clifton points out that if someone is discouraged and has stopped looking for work, then that person is not counted in the U3 number as unemployed. He also notes that if someone works just one hour a week and is paid $20, he or she is not counted as unemployed.
Gallup publishes on its website the U6 unemployment rate, which it calls “real unemployment.” This is the BLS’s most capacious unemployment rate, including all of those counted in the U3 rate plus “discouraged workers,” “marginally attached workers,” and those “employed part-time for economic reasons.”
The marginally attached are defined as people who have looked for work sometime in the past year, but not in the past four weeks. The discouraged are those who have not looked for work in the past year because they believe there is no work available to them or none for which they would qualify. Those who are employed part time for economic reasons would like a full-time job, but can only find part-time work.
The September U6 rate was 9.3 percent, which translates into 14.87 million unemployed. While this rate gives a fuller picture than the U3 rate, it does not count those who have stopped looking for work for longer than one year, individuals whom the BLS classifies as “not in the labor force.”
Not in the Labor Force
In June 2016, the President’s Council of Economic Advisers released a report titled “The Long-Term Decline in Prime-Age Male Labor Force Participation.” The report notes that since 1965 the labor force participation rate of men in their prime working years (defined as ages 25 to 54) has steadily declined. In 1965, the number of men in their prime who were employed or unemployed and looking for a job was 96.7 percent. As of May 2016, that figure had dropped to 88.4 percent, meaning that 11.6 percent were not looking for work.
Nicholas Eberstadt, who holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute, has written a book about these men titled “Men Without Work: America’s Invisible Crisis.”
Eberstadt reports that in 2014 there were 7.2 million prime-working-age men not in the labor force. But this number understates those missing from our labor force—unemployed but not counted in the unemployment figures—by failing to account for men outside the ages of 25 to 54.
In an interview Eberstadt said, “If American men over the age of 20 just had the same work rates that our society had back in 1965 … there would be almost 10 million more men with paid jobs.”
Eberstadt points out the 7.2 million also misses the declining situation for women. While up to the year 2000 women’s labor force participation rates had been steadily improving, since 2000 those rates have been dropping similarly to men’s.
Calculating from data published by the BLS for 2014, an additional 3.6 million women would have had jobs in 2014, if they had been working at the year 2000 participation rates.
If 13.6 million long-term discouraged workers are added into the current BLS labor force number of 159.9 million, the unemployment rate swells from the U6’s 9.3 percent to 16.4 percent.
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