Digging into the data on US jobs

David MoonBlog

Recent headlines report that US unemployment has dropped to 5.8 percent, the same as it was in 2008. On the surface that makes sense; there were 8.92 million people unemployed in 2008, compared to 8.99 million last month.

Same number of unemployed people; same unemployment rate.

The data are much more complex and interesting.

In these six years, the economy has added 1.9 million new jobs. There were 15 million people who aged into the workforce and 6.5 million who aged out. On a net basis, there were 8.5 million new employable people, but only 1.9 million new jobs.

But the unemployment rate remained unchanged.

The explanation lies in the definitions used by government statisticians and some surprising demographic anomalies among the newly employed.

The 5.8 percent unemployment figure is known as the U-3 unemployment rate.  This is the total number of unemployed persons, as a percent of the civilian labor force. 

The term “labor force” only includes unemployed persons if they are actively seeking a job.  When people stop looking for work, the Bureau of Labor Statistics (BLS) removes them from the denominator.

That is, if everyone without a job stopped looking for one, the unemployment rate would be zero. 

Only about 60 percent of the adult population is considered in the labor force. (This is the lowest level since 1978.) The rest of the adults in the country are either retired or not seeking work for some other reason.

That is, approximately 40 percent of the adult population isn’t working, either by choice, circumstance or capitulation.

One-fifth of all US families do not have a single member with a job. 

The retiring baby boomers hardly explain the shrinking labor force. Since 2008, more than twice the number of people in this country reached working age than reached retirement age.

Since 2008, about the same number of people have retired as have simply quit looking for work (6.5 million.)

It is no wonder that subjective polls repeatedly find that Americans, in total, continue to be pessimistic about the job market.

Another reason that 56 consecutive months of new job creation hasn’t more positively changed peoples’ views of the employment market is the unusual demographic concentration of who has filled those new jobs.

While the number of new jobs has increased 1.96 million since 2008, the number of newly employed foreign born US residents increased 1.6 million. That is, 80 percent of the net new jobs created in the past six years are held by foreign born workers, a group that comprises only 17 percent of the country’s jobholders.

This group does include workers who are in the US both legally (including naturalized citizens) and those who entered illegally, but the BLS doesn’t provide a break-out between the groups.

Employment isn’t the only economic area where headlines and reality conflict. Next week: six years of wealth changes.