Thursday, February 5, 2015

The Big Unemployment Rate Lie

Those who are either counted as "employed" and those who are counted as "unemployed" are not the people driving down the reported unemployed rate. It's the people who are no longer counted at all — they are the ones who have been mostly driving down the unemployment rate.

In a recent op-ed piece by Jim Clifton, Chairman and CEO at Gallup, he says the unemployment rate is a big lie. "Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren't throwing parties to toast falling unemployment." (I had guesstimated closer to 48 million out of work back in 2013.)

In a recent post titled "Where are the Jobs" (click on the link at bottom right called "Overview") and it says:

If all the job openings in the United States were to be filled today, an additional 5 million Americans would be employed. That total is higher than the population of twenty-eight states, as well as every American city other than New York. It is the most job openings at any one time in the United States since 2001 — enough to provide work for nearly three-in-five of the 8.7 million Americans who are now categorized as unemployed.

For future reference in this post, please take note they used the phrase "categorized as unemployed". In their newest report (the third in The Century Foundation’s Working Paper Series) they explored the issues complicating the demand side of the U.S. labor market. Their five key findings were as follows (followed by humble translations marked with an asterisk):

1) Now is the best time in recent years to be a job seeker. After falling steeply during the Great Recession, the job openings rate has fully recovered; similarly, after spiking during the recession, layoffs have fallen back to their normal rate. The pace of hiring is also nearly back to pre-recession levels.

* Translation: Hires and separations are supposedly back to pre-recession levels, the good news being: workers aren't being laid-off or fired as often as they once were during the economic turndown — and the hire-rate (job creation) is back to "normal". But this still doesn't also address the "long-term unemployed", those millions who lost their jobs during the recession. Most of the job creation over the past 6 years was formed from the pool of new entrants into the labor market, and the short-term unemployed (Most notably, older long-term unemployed Americans were usually left out of the draft picks).

2) White-collar industries—led by finance, health care, education, and professional services—are the best places to be looking for work. These sectors enjoy low unemployment, lots of openings, and strong compensation.

* Translation: College grads are finding lots of jobs that pay pre-recession wages, and are often taking jobs that high school graduates once vied for — such as taxi driver or bartender — because those jobs pay better than entry-level white-collar jobs — and only fast-food or retail positions might pay less than entry-level white-collar jobs. Many employers are also looking for free labor (i.e. unpaid employees, e.g. interns or independent contractors).

3) Most blue-collar fields are suffering. The construction industry was particularly hard-hit by the recession, and the sector’s job openings remain scarce. The same is true of manufacturing, which has also failed to regain pre-recession employment levels. As a result, many low-skill workers have had to seek refuge in the retail and leisure industries, which tend to have the worst-paying, least-stable jobs.

* Translation: Those without college educations (high school grads and dropouts) are being squeezed out of the job market by those with college diplomas, although many of the jobs that college grads take don't even require a higher education. The better-paying blue-collar jobs were offshored; and tech jobs were both offshored or offered to guestworkers on visas for depressed wages.

4) Government remains among the most desirable employers. Pay is good and job security is unparalleled in public sector jobs—for highly skilled and less-skilled workers alike. It is also America’s largest industry, accounting for one-in-six jobs. But the pace of government hiring, which plummeted after the recession, remains lackluster. Finding government work is no easy task.

* Translation: College educations are also required for many of these jobs as well (if the GOP isn't cutting government budgets to stunt government job growth); and for those government jobs that don't require college skills, they usually require at least a high school diploma (or GED). And a civil service exam is also usually required, giving (as it should be) preference to our military Veterans.

5) The rich are getting richer. Industries with the highest average earnings have seen the fastest earnings growth.

* Translation: The mega-rich got rich on the backs of the American workers: H1-B visas, offshoring, union busting, right-to-work laws, depressed wages in an over-saturated labor market, using "independent contractors" instead of regular employees, using temp workers, cutting full-time workers to part-time, eliminating fringe benefits (such as pensions, etc.), or by using technology (e.g. computers, automation, robots, etc.)

Next (in the "Where are the Jobs" article), click on the link at the bottom right called "Measuring the Demand for Labor", and it explains the BLS JOLTS report. Then click on the link at bottom right of that page called "Job Flows and the Great Recession", and it explains more about the BLS JOLTS report. According to the last BLS JOLTS report, there were 5.0 million job openings; and that over the previous year-to-date, "hires totaled 57.6 million and separations totaled 54.9 million, yielding a net employment gain of 2.7 million. These figures include workers who may have been hired and separated more than once during the year."

Next, click on the link at the bottom right called "Openings and Unemployment", and it says: "There are about 5 million vacancies waiting to be filled in the United States right now. That’s enough to provide work for more than half of America’s roughly 8.7 million officially unemployed (as of December 2014). But if so many jobs are available, why aren’t more people finding work?" (Then they go on to discuss the debatable subjects of "frictional unemployment" and "structural unemployment" and "cyclical unemployment" and "skills mismatch".)

Next, click on the link at the bottom right called "So Where Do We Stand Today?", and it says: "Classifying the unemployed into these three neat buckets—frictional, structural, and cyclical—is not a simple matter. In many cases, multiple forces can be at play. During a recession, a bit of structural mismatch can be magnified, and frictions can be made rougher still."

Next, click on the link at the bottom right called "Overview by Industry", then click again on the link at the bottom right called "Job Openings and Unemployment by Industry". Here they discuss decreasing unemployment-to-openings ratios:

At the top is construction, whose ratio of 5.8 indicates there are 5.8 available workers for each construction job opening ... At the other extreme, the financial services industry is doing quite well ...

The industries where work is toughest to find — where latent labor supply most exceeds unfulfilled labor demand — are exclusively low-skill or blue-collar industries: manufacturing, mining, transportation, wholesale and retail trade, leisure and hospitality, and other services ...

In contrast, high-skill industries—finance, education and health services, professional services, and, to a lesser extent, information—have unemployment levels that are almost offset by vacancies. It is comparatively far less difficult for workers in these industries to find jobs.

Government—a typically white-collar industry that nevertheless can offer good jobs to the less skilled—also fares better than the private sector, with a ratio of 1.3, meaning that for every four unemployed government workers, there are about three available government jobs. What sets government apart from the private sector is its exceedingly low unemployment rate, just 2.9 percent.

Equally important is who government employs. While the public sector, like the private one, has placed a greater premium on education and intellectual skills in recent decades, government remains an important source of good jobs for less-educated workers as well. For example, occupations like police, sanitation, day care, and the postal service often do not require college degrees—but they do provide valuable public services. At a time when stable, well-paying jobs for the less-skilled are drying up, government can become increasingly important refuge in the market for blue-collar jobs ...

[Whereas, on the other end of the spectrum,] construction and manufacturing represent nearly a fifth of the unemployed, but account for only 8.7 percent of job openings. And the two largest low-skill industries—leisure and trade—also bear a disproportionate share of unemployment.

What emerges is a clear pattern: the unemployed are concentrated in low-skill sectors, while the jobs are available largely in high-skill ones. The economy wants accountants and teachers, but the labor force is supplying factory workers and carpenters.

Next, click on the link at the bottom right called "Hires and Separations by Industry", and it says:

When we consider that few government employees leave their jobs, it’s as if the government is hiring at a faster pace (relatively speaking) than it really is. Said differently, if government workers quit at the same rate as private sector workers, its H-L ratio [hires-to-layoffs] would be 6.7 --- Bear in mind, though, that this doesn’t mean government is hiring a lot of people — it’s not. What it does mean is that, relative to the number of people government lays off, it hires a lot. This bodes well if you have a government job, though not necessarily if you are trying to get one.

Overall, the private sector’s H-L ratio is 2.9 ...

Industries with high adjusted H-L ratios have quite low quits and layoffs rates. Their hiring rates also tend to be below average. Government and education are good examples. These industries are stable to a stereotypical extent, offering strong job security ...

When it comes to labor demand, the tail tends to lead the dog. Exit rates [layoffs and firings] drive entry rates [hiring]. In good times, firms hire at rates sufficient to replace workers they fire or who quit, plus a little extra, because individual industries, like the labor force as a whole, tend to be growing over time. Industries that are expanding have the most “excess” hiring (hiring above the replacement rate), and those that are contracting have the least.

Next, click on the link at the bottom right called "Job Growth by Industry", then click again on the link at the bottom right of that page called "Earnings by Industry", then click yet again on the link at the bottom right of that page called "Conclusion", and it says:

Creating meaningful, well-paying jobs for less-skilled workers has become one of the most significant and perplexing economic policy challenges confronting the United States. Education is clearly one important component of an effective response: making less-skilled workers more skilled is one essential path to promoting upward mobility. But even if all Americans were college educated, inequalities would remain; not everyone can be an above-average earner, and not everyone can have the corner office.

The good news is that now is the best time in quite some time to be a job seeker in America, provided you have the skills employers desire. What we make of this fortuitous moment — and, in particular, who gets to share in the opportunities it provides — will depend upon our policy choices ..."

* Translation: A Ph.D alone doesn't guarantee a job, not to mention, a job that pays a living wage — or offers any type job security. And it's not just "what" you know, but also "who" you know — and that still makes a big difference between surviving in this economy or dying in the street like a rabid dog. (Currently, three Wall Street banks are attempting to keep hidden their practice of paying executives multimillion-dollar awards for entering government service.)

The Final Conclusion

If you have a college degree in science, technology, engineering or mathematics (STEM skills), but are only working 10 hours a week part-time (because it's all you can find), then you are severely under-employed — but yet, you are still considered "employed". These are the people that the BLS says are working "part time for economic reasons". Currently there 6.8 million Americans who are under-employed. (This also keeps the unemployment rate down).

There are another 6.2 million Americans (who also want a job) but are no longer counted in the unemployment rate, because they are no longer considered a part of the labor force (This also keeps the unemployment rate down).

And then there are what the BLS calls "multiple job holders" — the number of Americans working more than one job (to make ends meet?) This rose from 6.9 million to 7.3 million multiple job holders over the past year.

There are also a number of older workers who were forced to take earlier Social Security retirements (with reduced benefits) at age 62 because the job creators wouldn't hire them. (This caused a further decline in the population-to-employment ratio and the labor force participation rate — but this also helped to keep down the unemployment rate — because if someone is not in the labor force, they are neither "employed" nor "unemployed".

The official U-3 unemployment rate (the one that makes the media headlines, not the discontinued U-7 rate), has come down from its peak since September 2009 (when the unemployment rate was first reported at 10.2% before being "seasonally adjusted" by the BLS — when 15.7 million American workers were reported unemployed. But the decline in the unemployment rate since that time was largely because people gave up looking for work and dropped out of the labor force entirely. And also because full-time jobs are getting mulched into a thick sludge of less-desirable part-time and temporary work.

As an aside: A few reader comments on this subject at Mark Thoma's blog:

"The number of jobs that appear to be available is hugely overestimated because employers are bottom fishing with underpaid wages and benefits insufficient to attract applicants. It costs little and they can get lucky over time to pick up desperate employees."

"They look for particularly hard-to-find skills, when in reality, they are looking for commodity talent — of whom they intend to use only a small part, or a basic version, of the claimed skills."

"I suspect that a lot of businesses are indeed honestly looking for someone willing to work for far less money, fewer benefits, and less job security than the required skills normally justify."

"Firms have reduced the size of their HR (specifically hiring) departments and rely ever more heavily on computer programs to pick out keywords in cover letters and CVs. The result of this is that a job applicant (that a human would choose to interview) could be excluded by the computer program based on their application package lacking the appropriate keywords [and] may explain why large numbers of job vacancies and job seekers are unable to make a match."

"I am willing to bet that the bulk of open jobs is from a firm looking for someone with X skills and three years experience. But because no one was hiring three years ago, people with three years of experience don't exist. Even my local Dunkin Donuts has signs up saying they want new employees with experience. An inexperienced employee is very expensive until they learn to do the job — and every firm is trying to push that expense off onto someone else."

"Part of the reason for the phony Help Wanted ads is because the law requires you to run an ad before you can hire an H-1B guestworker at bargain basement rates. This link [at YouTube] is to a seminar on how to not hire an American worker.

Meanwhile, Governor Scott Walker (R-Wisconsin) wants to drug test people who apply for unemployment benefits (those who are still counted as "unemployed") — even though, currently, the percentage of people receiving unemployment benefits is at the lowest level since at least 1972.

Odds and Ends

This post "Making Sense of the Phillips Curve" (a bit wonkish) indicates that there are those who believe that "significant inflationary pressure would begin to emerge, even at higher rates of unemployment, so that a prudent policy would be to operate at a level of unemployment sufficiently high to keep inflationary pressures in check." (Does this mean that, keeping the labor market to a particular level of over-saturation helps to keep downward pressure on wages, and is thereby, a good means for not raising inflation?)

From Stumbling and Bumbling: Anti-Business -- "There's a point being missed in the debate about whether Labor is anti-business --- that there is, in fact, a good case for being anti-business. Business has become an extractive institution, taking more money out of the economy than it has been putting in. The fact that we're talking about secular stagnation shows that business is failing."

A new study shows that the increasing "individualism" (a social theory favoring freedom of action for individuals over collective or state control) in the U.S. is linked to the rise of white-collar jobs. One reader commented: "White-collar workers bowl alone. Blue-collar workers are communal, form [bowling leagues and] unions, and vacation on cruise ships."

Quote of the Day: Most of the jobs that will be created by the Keystone pipeline will be for cleaning up oil spills (if the GOP doesn't defund the EPA). This is otherwise known as "The Keynesian Multiplier Effect".


  1. Bloomberg: Where the Job Growth Is:

    "The fastest growing sector, in both percentage and absolute terms, is professional and business services. It added 2.9 million jobs for an 18 percent gain. The biggest single contributor to that was temporary help agencies, which added 888,000 jobs ... The not-very-surprising big message from the numbers is that 'services' are where almost all the action is. That's where most jobs now are, and it's where most new jobs are created ... There's one big part of the service sector, though, that has seen no job growth at all during this recovery: Government."

    1. U.S. wage growth remains sluggish despite employment gains