Assessing the employment situation is easier said than done: Media accounts contain a bewildering and overlapping array of concepts included in the employment and unemployment reports from the Bureau of Labor Statistics (the “BLS”) at the U.S. Department of Labor. We have sought to lay out in a clear way the BLS concepts and how they fit together in the appendix tab titled Demystifying Unemployment.
There, we have teased out eight categories of potential workers that are included in the BLS numbers, as follows:
The categories are described in the following figure:
The BLS statistics include Categories 1, 2 and 3 in the definition of “Employed”. As we discuss below, that term is a bit too broad: first, by definition it includes, in Category 3, those who are working part-time but want to be working full-time; second, Category 1 includes many individuals who are underemployed in other ways.
On the other hand, the definition of “unemployed” in Category 4 (which is the “U-3” official unemployment rate), is too narrow: it includes only unemployed individuals available for work who actively sought work during the four weeks preceding the survey interview (or are waiting to be recalled from a temporary layoff).
The BLS has acknowledged the shortcoming of the narrow definition of the “U-3” official unemployment rate, and has published alternative measures of unemployment.The most commonly referred to is “U-6,” which includes Categories 3, 4, 5, and 6.The U-6 unemployment rate for 1994-2014 (first five months) is presented in the following Figure:
So, where do we stand? In March of 2015, the U-6 unemployment rate stood at 10.9%. Nearly six years after the official end of the Great Recession in June of 2009, the U-6 unemployment rate was still as high as or higher than the worst points reached during the two previous recessions, 10.9% in 1994, and 10.2% in 2003. That is, nearly six years into the “recovery,” we were still experiencing recession-level unemployment; the U-6 rate was nowhere near the post-recession recovery lows of 7.1% in 2000 and 8.3% in 2006.
Next Step: U-6 plus Available but Not Looking
However, there is another category that should be paid attention to: Category 8, those who want a job but are even more discouraged than the “discouraged workers” in Category 5 – they have become so discouraged that they didn’t undertake any active job seeking activities in the 12 months preceding the survey interview.
So, as a starting point, we can track the percentage of the “potential workforce” in Categories 3 through 8 (but excluding Category 7, who are not available for work), as a full measure of those who are unemployed, want a job, and are available for work, or are working part-time and want a full-time job. Those percentages, from 1994 through 2014, are presented in the following figure:
During 2014, this “U-6 plus Category 8” unemployment rate averaged 14.3%. During the fifth year after the official end of the Great Recession, this “U-6 plus Category 8” unemployment rate was still higher than the worst points reached during the two previous recessions, 13.3% in 1994, and 11.8% in 2003. It was nowhere near the post-recession “recovery” lows of 8.7% in 2000 and 9.9% in 2006.
Able Workers Who have Dropped Out of the Workforce
Is there anyone else we should be considering to get a full picture? It turns out that there is.
Since the onset of the Great Recession, the population has been growing, but the labor force has not. BLS defines the “Labor Force” as those who are employed (our Categories 1, 2 and 3) and those who are unemployed and actively looking for work (our Category 4). We use the more expansive “potential workforce” concept, including Categories 1-6 and Category 8. Under both definitions, the labor force has remained flat since 2008 while the population has grown, as illustrated in the following figure:
In fact, as a percentage of the population (The BLS refers to this concept as the "Labor Force Participation Rate"), labor force participation is declining. The following figure shows both the BLS definition of workforce and our broader concept of potential workforce as percentages of the civilian population over age 16:
This is the chart that has many people concerned: Both the narrower BLS measure of the Labor Force Participation Rate and our broader measure of potential workforce have declined steadily since the depths of the Great Recession in 2009.
Why is a smaller percentage of the working-age population participating in the workforce? Two members of the staff of the Boston Federal Reserve, Christopher Erceg and Andrew T. Levin considered the causes of the post-2007 decline in the U.S. labor force participation rate in a paper published in April 2013.[i]
They concluded that the entire decline in the labor force participation rate since 2007 was attributable to workers’ responses to the persistent shortage of demand for their services in the aftermath of the Great Recession. Some went back to school (nearly all of the decline for youths aged 16-24 years and a substantial portion of prime age workers), some went on Social Security disability benefits (a substantial percentage of the older workers aged 55-64 years), and some retired (only a small net fraction, as retirements were offset by individuals staying in the workforce longer).
Focusing on the drop in the participation rate of prime-age adults (age 25-54), they concluded that only about half the decline could be explained by these factors. The other half, about a million individuals, simply dropped out of the workforce.
It therefore appears that there is indeed one more group, not included in Categories 1-8, who have left the workforce in response to the “persistent shortfall in labor demand” since the Great Recession, and who respond “no” when asked in the BLS survey whether they want a job and are available for work – true “workforce dropouts,” the term we will use to refer to them.[ii]
[i] Christopher Erceg and Andrew T. Levin, “Labor Force Participation and Monetary Policy in the Wake of the Great Recession.” Federal Reserve Bank of Boston, April 9, 2013.
[ii] Erceg and Levin predict that if and when labor market conditions improve, the re-entry of individuals into the workforce will be “moderate,” as some return to use the education they have gained and some see improved likelihood of finding a job. Others, such as those on disability and those with deteriorating skills, are not likely to find their way back.
The gap between this group of potential workers and the jobs created by the economy is even clearer when looked at from the point of view of employment (rather than unemployment). The following figure presents (i) potential employment if the entire potential workforce were employed, (ii) projected employment if the percentage of the potential workforce employed in 2006 (90%) had been maintained through 2014, and (iii) actual employment (defined as full-time and voluntarily part-time).
In March of 2015, the gap between the number of jobs at the 2006 employment rate and actual employment stood at 6.3 million jobs.
However, given our focus on what has happened in trade, jobs and employment since 2000, it is even more instructive to consider the jobs gap that has resulted from both the 2001 and 2008 recessions.
The following figure presents (i) potential employment if the entire potential workforce were employed, (ii) projected employment if the percentage of the potential workforce employed in 2000 (91.3%) had been maintained through 2014, and (iii) actual employment (defined as full-time and voluntarily part-time).
In March of 2015, the gap between the number of jobs at the 2000 employment rate and actual employment stood at 8.2 million jobs.
Key Finding - The Jobs Gap: We are short 6.3 million jobs to get back to the rates of 2007, 8.2 million jobs to get us back to the employment rates of 2000.
So, our answer is, no, we have not replaced many of the offshored manufacturing jobs lost during the last two recessions with other jobs – we are still 8.2 million jobs short.
GO TO Underemployment and Low Pay.
May 15, 2014, Ontario, CA - MIAA's founder, Jim Stuber, delivered the keynote address at the 20th annual World Trade Conference sponsored by the U.S. Department of Commerce and the California Inland Empire District Export Council in Ontario, California. To view the conference agenda, click here:
May 7, 2015, Radnor, PA. MIAA's founder, Jim Stuber, appeared as the guest of host Richard J. Anthony, Sr. on The Entrepreneur's Network TV at Radnor Studio 21. The program featured a discussion of the problems caused by offshoring manufacturing and white collar jobs and how consmers can solve the problem with their spending decisions.
Studio 21 has made the program available for viewing here: