What Our Unemployment Rate Really Means
WHY YOU SHOULD CARE
It turns out economists haven’t quite calculated one of the most closely watched figures.
By Simon Constable
Simonomics: A regular look at the global economy from a former staff columnist at The Wall Street Journal.
Like lucky lottery numbers, few figures get as closely scrutinized every month as America’s unemployment rate. Now hovering at just 5.3 percent, down from 6.2 percent a year ago and close to half what it was five years ago, things seem to be on the up-and-up in the job market, right?
Well, turn to an elderly loved one, sitting back in a big comfy armchair sipping a mint julep, and they’ll probably tell you things just aren’t what they used to be. And they’d be right. Today’s unemployment rate isn’t anywhere close to what economists call a “full employment” situation — one that usually involves some small level of unemployment, where people spend at least some time looking for new positions or finding work after they’ve quit. In fact, an unemployment rate of 5.3 percent would have been a better reflection of a tight labor market a decade ago than it is today, says Stuart Hoffman, chief economist at PNC Financial Services Group.
He’s right, of course. It’s as if we record only the height of people — and ignore their weight — as the sole measure of their health. After all, you’re considered unemployed only if you’re actively looking for work. Over the past decade, a lot of people simply haven’t been looking: Nearly 63 percent of folks 16 and older are either toiling away or busy searching for a gig, down from 66 percent in 2005. That may not seem like much, but it means roughly 8.5 million fewer people are working these days. And this so-called participation rate, which held firm before the Great Recession of 2008, has been falling steadily since the economy rebounded.
Before the downturn, marginal workers would’ve added 3.7 percentage points to the unemployment rate. Today: 5.1 points.
At least some of this has come down to changing demographics, including a flock of retiring baby boomers, says Mark Vitner, senior economist at Wells Fargo. Then there are those folks who are nominally employed (thanks, Internet!) but who hold part-time jobs when they’d rather be working a full week — like freelance contractors juggling odd jobs. Just before the last great global downturn, in July 2007, these marginal workers would have added an additional 3.7 percentage points to the unemployment rate, according to government data. Today? They’re adding an extra 5.1 percentage points.
Another part of the challenge here is when politicians start yakking about jobs, like many of them are doing right now. Take, for instance, the decision by JPMorgan Chase to move several thousand jobs from New York to New Jersey. Other businesses made similar shifts, and for a clear reason: Manhattan office space isn’t as cheap as it is across the Hudson River. But how long before New Jersey’s elected officials (yes, Governor, we’re looking at you) start using this increase in workers to claim that their regime created so many more jobs?
And we haven’t even gotten to a group known as discouraged workers. Yes, that’s a real thing — and they’re exactly who you might expect them to be: people who’ve had such little luck landing a job that they’ve thrown up their hands in defeat. But, as Hoffman warns, it’s hard to differentiate whether they’ve really given up or, say, returned to school, either to bum around on campus or because that nursing degree is really what they wanted to pursue all along.
No wonder economists have such a tough time figuring this all out — which, it seems, they haven’t yet.