Economics and Data – Real Unemployment
and Labor Force Participation
On June 6th, as part of his regular segment called
“data download” Chuck Todd of NBC News and Host of “Meet the Press” highlighted
a stark reality as it relates to our current labor situation, that our Labor Participation
Rate in June 2021 is no different than it was in June 1977.
Take a watch and listen to this video:
I have been saying for some time that I strongly believe that our (the USA’s) economic fundamentals are really off kilter (“screwed up” as I put in in some posts). To me there are several measures that I look at to see what the overall health of the economy is, and they aren’t’ what typically get rolled out in the general media coverage of how things are going. You know the measures put out there: GDP growth, unemployment, stock market growth, size of the federal annual budget deficit, overall trade deficit, quarterly earnings, and so forth. These are “ok”, but they really are too gross to get a real picture of the economy and its health across sectors and effecting most of us. I won’t go over many of these now, and what a good analysis says about them, but some of the time based trends I carefully watch are:
- Real GDP per capita (production on a per person basis), its growth/decline, and in comparison with the EU, China, and other major competitors; https://fred.stlouisfed.org/series/A939RX0Q048SBEA)
- Gini Index (https://fred.stlouisfed.org/series/SIPOVGINIUSA)
- Inflation rate (https://fred.stlouisfed.org/series/T30YIEM)
- Trade balance (https://fred.stlouisfed.org/series/BOPGSTB)
- Housing and household statistics (https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/03/household-expenditures-and-income)
- Real wages (https://fred.stlouisfed.org/series/LES1252881600Q)
- Business debt (https://www2.deloitte.com/us/en/insights/economy/issues-by-the-numbers/rising-corporate-debt-levels.html)
- Business Investment (https://fred.stlouisfed.org/series/W790RC1Q027SBEA)
- Federal debt as a percentage of GDP (https://fred.stlouisfed.org/series/GFDEGDQ188S)
- GDP by industry over time (https://www2.deloitte.com/us/en/insights/economy/spotlight/economics-insights-analysis-07-2019.html)
- Federal spending as a percent of GDP (https://fred.stlouisfed.org/series/FYFRGDA188S)
I look at them not only in terms of their own meanings
(which can be significant), but also in comparison with one another. And if you look at all of these, you will
start to see a picture that isn’t healthy for the long-term, and we really need
to have a plan to address many of the problems therein.
The one I want to focus on here, however, is specific to employment. For some time now it has become too fashionable to determine how “normal folks” are doing by looking at the unemployment rate. If the rate is in low single digits, the media, politicians, and seemingly everyone believes that the economy is doing great! If it creeps above 8% or more, especially if it goes double digits, the reports are that the economy is in the toilet and that folks are suffering massively. Here is a chart tracking the unemployment rate over that last couple decades in the US (2001 to 2021):
[i]
Here is the thing though; the unemployment rate is a very short-term measure of things. This is because the term “unemployed” is a very loaded term. Here is that definition according to the Bureau of Labor Statistics:
“In the Current Population Survey, people are classified as unemployed if they meet all of the following criteria:
Long and short, if you’re reading carefully, the term “unemployed” does not mean the sum total of all those that are “out of work”. No, it is a very limited sub-category of those that are “out of work”, given that it omits anyone that has been determined to no longer be in the “labor force”. So while “unemployment” may have a low percentage, there could still be a large percentage of folks not working, aka “out of work”. So, how then do we figure out what the reality is in terms of who is really “out of work”? To get at that, we need to get at the Labor Force Participation Rate.
The labor force participation rate (or participation rate) “represents the number of people in the labor force as a percentage of the civilian non-institutional population. In other words, the participation rate is the percentage of the population that is either working or actively looking for work. The labor force participation rate is calculated as: (Labor Force ÷ Civilian Non-institutional Population) x 100.”[iv] Imbedded in this is the idea of the civilian non-institutional population, which is the “population age 16 and older… published by BLS … [excluding] the following:
- active duty members of the U.S. Armed Forces
- people confined to, or living in, institutions or facilities such as
- prisons, jails, and other correctional institutions and detention centers
- residential care facilities such as skilled nursing homes
So what does that rate look like over time? The following is a chart of the Labor Force Participation
Rate since the end of World War II:
[vi]
As can be seen in this chart, prior to the mid-1970s, the
rate was somewhere between 58 to 60%.
Another way to look at this is that roughly 40% of the civilian population
was not in the labor pool. Social mores
up until that time, often precluded women from pursuing careers and often were
not working, yet were certainly part of the “civilian non-institutional
population”. Given that women make up
50.8% of the population[vii], this means that a large
part of that 40% was likely to be women.
Women taking on a more vigorous role in the labor force should have seen
a significant rise in the participation rate.
The rate, however, by the mid-1990s, more or less stayed in the 66 to 67%
range; a nominal 10% rise to prior to the widespread of women entering the
workforce. This means we still had about
a third of the potential labor pool not working.
Since 2000, this rate has been in decline; the point being that the percentage of the labor pool that is working is shrinking. People have simply moved from “unemployed” to “not in the labor pool” at a seriously concerning rate. Yes, when we see a spike in unemployment rate, which is bad. However, even if the unemployment rate is low (as we saw from 2002 to 2007) it does not mean that the labor participation rate is increasing or recovering (as we saw from 2002 to 2007, where it, basically, continued to drop and settled at a new lower rate). Moreover, even when there is an economic expansion (defined as a growth in GDP), does not mean “average folks” are seeing the benefit of it. If you look at this, then you should be getting a clearer picture why there is increasing dissatisfaction both in the political and economic arenas, especially for those that have heretofore taken it for granted that the American dream provided for a good paying job, in their hometown, doing something that their parents, grandparents, and generations before had done. This just is not the reality, and instead of unleashing the power and potential of the fullness of women in the workforce, we have missed a huge opportunity.
One might say that the economy does not exist to create jobs for people. I’d say that an economy that isn’t taking advantage of its human capital to the maximum justifiable extent (we shouldn’t be forcing 80 year olds to work), is truncating the opportunities not only for those out of work, but for the potential of the collective economy to strive. Having never broken the 70%, mark in the participation rate, given the widespread entry of women in the US workforce, is telling of some significant problems long term. And, when brought into the context of the rest of the statistics I mention above, it is certainly a clear reason we need to rethink our economic approach in the not too distant future.
[vii]
Source, 2010 Census, https://www.census.gov/programs-surveys/decennial-census/decade.2010.html
