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Sunday, August 28, 2011

13.6%, More Realistic Unemployment Rate

The Real Unemployment Rate Is 13.6%,
not 9.1%, in July 2011
see Section One


Less Than One Job Was Created, 2000 to 2010,
for every Ten Who Increased
the Potential Work Force

Here's a graph from Paul Krugman's blog, December 2, 2011. Note that the drop from 2001 to 2012 is about 6%, and that six percent represents over 7.5 million potential workers sitting idle. The BLS states 8.75 million jobs were lost 2007-2010. 


Between 1990-2000 total jobs increased by 15.2%. In contrast, between 2000-2010 total jobs increased by only 1.6%. And the number of private sector jobs decreased. The potential working population increased roughly by the same rate in both decades, but during 1990-2000 77.5% found jobs, and 2000-2010 only 8.6% found jobs.
See Section Two

With the same labor participation rate as in January 2000 (67.3% in January 2000 vs. 63.9% July 2011) today's pool of labor would enlarge from 153.2 million to 161.3 million. But the number of jobs would not increase. The unemployment rate, U3, would be higher. An additional 8.1 million workers would join the unemployed. There then would be 22 million unemployed in a labor force of 161.3 million, and an unemployment rate of 13.6%.

There are 239.7 million in the July 2011 civilian non-institutional population. Of that 239.7 million only 63.9% participate in the labor force, much lower than the 67.3% participation rate of January 2000. With the 2000 participation rate today's labor force would increase to 161.3 million, not 153.2 million as reported. With only 139.3 million working in July 2011, that would leave 22.0 million unemployed. 22.0 divided by 161.3 equals 13.6. That's the unemployment rate today if the participation rate of January 2000 were in effect. The workforce pool would swell by 8.1 million additional unemployed workers, but the number of jobs would stay the same. Today's 13.9 million unemployed would have 8.1 million added to their number. The unemployment rate would rise from 9.1% to 13.6%.

For twenty years, 1988 to 2008 the labor participation rate rarely dipped below 66%, and for almost 4 years was above 67%, but today it stands at 63.9%. One has to wonder, what is the true labor participation rate? Does it oscillate according to workers' whim, or is it decreased by poor economic conditions? Is it just a measure of how well or poorly the economy is performing? Discouraged workers are statistically relevant for only 12 months, and then they are dropped out of the workforce. Stating a smaller workforce makes the unemployment rate appear smaller. My point is, the same portion of the population would be willing to work, over 67%; the U3 unemployment measure is misleading.

The year 2000 had a high participation rate, as high as 67.3%, and low unemployment, 4%, proving that a large portion are willing and ready to work. What does a drop in participation indicate? It shows the attraction of the economy to draw workers to work. But today it appears to serve only as a disguise of the severity of the actual unemployment rate. Read Section Two below to see how poorly job creation has served the growing labor force over the past decade. Private sector employment stood at 110 million in 2000, and today it stands at 109 million despite a growth of the civilian non-institutional population by 25 million adults (from 212,557,000 in 2000 to 237,830,000 in 2010).

The labor participation remained above 66% for 20 years, 1988 - 2008. See labor participation rate (or shall I call it the "labor willingness rate") From 1997 - 2001 the unemployment rate was below 5%. But in 1992 unemployment hit 7.5% and still maintained a participation rate of 66.4%.

To this adjusted 13.6% unemployment rate, add 5.5% who work part-time but are looking for full-time. The combined unemployed and under-employed rises to 19.1%. Add to 19.1% some 10.7% who work full-time and year-round for below poverty level wages and you arrive at 29.8% who constitute the misery rate. Over 48 million (nearly 1/3rd) workers or would-be workers are struggling in the country whose economy generates over $47,000 a year per human being, and over $100,000 per worker.

The misery rate stands at 29.8% --- that is 48 million out of work, not enough work, or poverty level work.

A look at the rate of and composition of under-utilized workers shows that low income workers suffer most from under-utilization. The higher one's income the less probable the problem of unemployment or under-utilization; the lower half of the earners are approximately 3 to 4 times more likely to be under-utilized. (See Center for Labor Market Studies, Northeastern University, report on Labor Under-utilization Problems, page 4 --- ----)

SECTION TWO --- Number of New Jobs
Falls through the Floor

Here's an added depressing look at the labor force and unemployment.

Let's take a close look at the labor force growth between 2000 and 2010.

I summarized this section much later, on September 12, 2011, when I commented on an article by Dean Baker. This section is so very complicated the summary is helpful. Here's a summary:

I looked at the figures about increase in labor force. Comparing the decade 1990- 2000 with 2000- 2010 you see a stark shift. During both decades the expansion of the civilian non-institutional population was about the same, around 12% (12.3% and 11.9%). But how many entered the labor force is a much different picture (13.2% vs 7.9%). And by how much did the number employed increase? Answer: 15.2% in 1990-2000, and 1.6% in 2000-2010. You (Baker) say that the reason for the fall off in the increase in the labor force has to do with the baby-boomers. Not so. Private sector employment growth 2000-2010 is a negative number, 110 million vs 109 million. Conclusion: the drop-off in the growth of the labor force is a function of job availability. The private sector has not created enough jobs. During 1990-2010, 71% who came of age (net increase) joined the labor force, 2000-2010 only 44% joined the labor force. Obviously I worked on these details one day, and I wrote about it at, August 2011. We have been in a sort of recession since January 2000 when the labor participation rate was much higher and employment was below 4%. The real unemployment number is 13.6%, not 9.1%. Thanks

Now, for the part I wrote in August: It's so complicated the summary is helpful.

Between the years 2000 - 2010 the civilian non-institutional population grew by 11.9%
(some 25,253,000 added, from 212 million to 237 million).
The civilian labor force grew by 7.9% (some 11,306,000, from 142 million to 153 million).
This says that of the increase in the population of potential workers (25 million), 44.8% entered the labor force (11 million), and 55.2% (14 million) did not enter the labor force.
The employed civilian labor force grew by 1.6% (some 2,173,000, from 136,891,000 to 139,064,000). (My confusion here has to do with the ages of those who decided not to participate in the labor force. I imagine that most of the missing participation occurred with older workers, a slow discouragement led to a persistent leakage out of the work force -- that's my guess.)
Out of the 25 million increase in civilian non-institutional population, 8.6% found jobs. 25 million were added to the first (population), 2.2 million were added to the second (jobs). Restated: For every 12 people added to the population of potential workers, 1 job was added to the total employed!

Of the 44.8% who entered the labor force, a low percentage of total civilian population growth, (44.8% amounts to a total of 11,306,000 entering the labor force), only 2,173,000 jobs were created for those 11 million. For 9 million there was no job available. Heidi Sheriholz at states that the job deficit is 11.2 million, not the labor department's 8.8 million who lost their jobs 2007-2009. She probably believes that more than 11 million would have entered the labor force, but how many more? Those additional would swell the numbers of workers who could not find work.

Immediately it is apparent that job growth was insufficient. The job creation
number (2,173,000) was 8.6% of the population growth number (25,253,000), and 19.2% of the growth of number joining the labor force (11,306,000). If the economy can only provide jobs for an additional 19.2% of those who enter the labor force, and 8.6% for the total increase of population, what hope have we for maintaining our present standard of living?

This looks pretty bleak.

Let's compare, from the same BLS table, the growth numbers for 1990 to 2000.
The civilian non-institutional population increased by 12.3% (23,353,000).
The labor force increased by 13.2% (16,737,000). (71% joined the labor force, not 44% during 2000-2010)
The number employed increased by 15.2% (18,098,000).
Out of the increase in the population, 77.5% found jobs.

In comparison, to repeat, the figures for 2000 to 2010 are:
The civilian non-institutional population increased by 11.9% (25,253,000).
The labor force increased by 7.9% (11,306,000).
The number employed increased by 1.6% (2,173,000). As I previously stated, private sector employment decreased by 3.4% during the decade.

Comparing the two decades, 1990 -  2000 to 2000 - 2010:
--- population increase: 12.3% to 11.9%,
--- work force increase: 13.2% to 7.9%,
---- number employed increase: 15.2% to 1.6%.

Most striking, the number employed between 1990-2000 increased by 15.2%, but 2000-2010 the number employed increased by 1.6%. And, of the increase in population, 1990 - 2000, 77.5% found jobs, but 2000-2010 only 8.6% found jobs.

(A reader told me he hated how I changed colors and size. I hope the last paragraph doesn't bother you. I should make it twice its size and enclose it in flames, if I could, but I'm controlling myself. Yes, I understand, too many numbers, very confusing. That's why I highlight some details.)

Section Three --- Rutgers University Employment Report
Here are two highlights from two Rutgers University professors,Seneca and Hughes, report, Economic Soft Patch 2, August 2011.

But, at the very same time—the end of the fourth quarter December 2010—total private-sector employment in the United States remained 7.6 million jobs, or 6.6 percent, below its pre-recession peak. Consequently, as 2010 came to a close, the nation was producing the same economic output with 6.6 percent fewer private-sector jobs—i.e., with 7.6 million fewer private-sector jobs.


Prolonged and subdued recoveries follow deep financial crises. The current situation is no different. The United States is still feeling the effects of the worst financial crisis since the Great Depression. The nation lost an unprecedented 8.8 million private- sector jobs during the Great Recession. Through June 2011, 2.2 million jobs (rounded) have been recovered, or about 24 percent—leaving a deficit of 6.7 million jobs. There is still a very long road to traverse before achieving full job recovery, but the employment recovery process is under way.

I think one should read Jack Rasmus' August 7,2011 article on employment before concluding that the employment problem is actually improving. I find some fault in the Hughes and Seneca report, which I won't bother any readers with. But the report adds another dimension to understanding.

Section Four
How Inequality Screws Up the Entire Economy

I seem to repeat this argument in every blog entry I make, so here it is again.

The Great Depression was caused by inequality of income. This is the conclusion of Marriner Eccles, Chairman of the Federal Reserve from 1934 to 1948. Writing in his 1951 memoir, he elaborates on the role of inequality as the cause: "Instead of achieving that kind of [fair] distribution of current produced wealth [meaning current income], a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. . . . Had there been a better distribution of the current income from the national product -- in other words, had there been less savings by business and the higher-income groups and more income in the lower groups -- we should have had far greater stability in our economy.”

Today our nation's economy suffers from maldistribution of income.

John Maynard Keynes also advised Franklin Roosevelt before he took office in a public letter to create public jobs. He stated that of three options for creating additional purchasing demand, only one could be relied upon, and the government must play that role, saying, ". . . public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money... It is, therefore, only from the third factor that we can expect the initial major impulse.”

Purchasing power, or consumer spending amounts to 70% of economic activity in the nation's economy. Who has the money to spend today? Purchasing power is dried up. In the almost fair years of 2006 the bottom 80% of workers received just 28.2% of the nation's total personal income through their labor. In fact with pensions, government pensions, social transfer payments, and alimony payments, the total portion of income received by the lower 80% totals 40%. The top 20% receive 60%. See the Tax Policy Center's 2006 report on source of income and distribution by income percentile.

The real rate of unemployment is not 9.1% but about 14.7%. Yet, with under-employment it's actually closer to 20%, and adding those who work for poverty wages in year-round full-time work, the Misery Rate is over 30%.

The nation's income is infirm, weak, debilitated by the very low purchasing power of the vast majority. And this rebounds in low employment.

Between 1940 and 1980 the top 10% of households never received more than 35% of all personal income, today the portion received by the top 10% reaches close to 50%, and as I've said above, the top 20% receives 60% of all income while the bottom 80% receives 40% (with 28.2% deriving from wages and salaries). (See Professor Emmanuel Saez' study "Striking It Richer" August 2010 Update)


Unemployment rate over the years, BLS figures

The best article I've read on employment comes from professor Jack Rasmus' recent article of August 7, 2011.

Tax Policy Center for Sources of Cash Income by Cash Income Percentile, All Tax Units, 2006

August 28, 2011, B. L.

THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone.

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