A lot of people are blogging this David Leonhardt piece on measuring "true" unemployment:
Over the last few decades, there has been an enormous increase in the number of people who fall into the no man’s land of the labor market that Carroll Wright created 130 years ago. These people are not employed, but they also don’t fit the government’s definition of the unemployed — those who “do not have a job, have actively looked for work in the prior four weeks, and are currently available for work.”
Consider this: the average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s. Yet the percentage of prime-age men (those 25 to 54 years old) who are not working has been higher than in any decade since World War II. In January, almost 13 percent of prime-age men did not hold a job, up from 11 percent in 1998, 11 percent in 1988, 9 percent in 1978 and just 6 percent in 1968.
Even prime-age women, who flooded into the work force in the 1970s and 1980s, aren’t working at quite the same rate they were when this decade began. About 27 percent of them don’t hold a job today, up from 25 percent in early 2000.
There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.
If growth in this group were the reason for the confusing statistics, we wouldn’t need to worry. It would be perfectly fair to say that unemployment was historically low.
The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation.
This attracted the attention of Felix Salmon, who says:
I'd like to see the nonemployment figures reported alongside the unemployment figures in the monthly jobs report. Neither tells the full story, but both together are richer than either one alone.
Actually, the BLS makes a pretty good stab at calculating this number: it lists figures for "discouraged workers" who say they want to work but are not looking for a job for economic reasons, and "marginally attached workers", who say they want to work, and have looked for work in the last 12 months, but did not seek work in the last four weeks for some personal reason. These are in the labor report right beneath the "headline" unemployment figure; it's just that journalists usually ignore them. That is a problem, but something the Bureau of Labor Statistics (BLS) cannot control.
That said, when I look at the BLS figures, I don't see the same catastrophe that David Leonhardt apparently reads in them. In 1982, according to this report from the BLS, the labor force participation rate for prime aged (24-55) males was 94%. In 2012, with the Baby Boomers retiring, it is projected to fall to . . . 91%. The participation rate for women, after rising for decades, has flattened out, but any drop is probably attributable to delayed childbearing, which swelled the tally in previous years.
Meanwhile, since 1994 the BLS has been providing a nice addendum to the Employment Situation Survey, with the enticing title of "Table A13: Persons not in the labor force and multiple jobholders by sex, not seasonally adjusted". That table breaks down how many people are not in the labor force, and how many of them say they want a job. The numbers for January of 2008, the last date for which data are available, are 4.9 million people out of the labor force who say they want a job, from a total of 79.7 million people out of the labor force. Of those 4.9 million, only 1.5 million had actually attempted to look for work in the last twelve months.
Now, one could argue that 4.9 million, or 1.5 million, is a lot of people. This is true. But if you go to the historical data section of the BLS website, and call up the figures for 1994-2008, you'll see that this figure is not really rising. In January 1994, as we pulled out of a recession, it was 6.9 million people. By 2000, at the height of the bubble, it was all the way down to 4.4 million, and has crept back to the current level since, around which it has been fluctuating for several years. Right now, we have about as many people out of the labor force who say they want work as we did in 1997. Since 1997, however, the population has grown a great deal. Just between 2000 and 2006 (the last year for which the census has data), it grew by 17 million.
This just doesn't match Leonhardt's story.
A better explanation, I think, would combine one thing that he emphasizes--falling real wages for the lowest skilled--with a slight boost in stay-at-home moms and a widening of eligibility for social insurance programs, particularly disability. Austan Goolsbee wrote about this in the very New York Times five years ago:
Research by the economists David Autor at the Massachusetts Institute of Technology and Mark Duggan at the University of Maryland shows that once Congress began loosening the standards to qualify for disability payments in the late 1980's and early 1990's, people who would normally be counted as unemployed started moving in record numbers into the disability system -- a kind of invisible unemployment. Almost all of the increase came from hard-to-verify disabilities like back pain and mental disorders. As the rolls swelled, the meaning of the official unemployment rate changed as millions of people were left out.
By the end of the 1990's boom, this invisible unemployment seemed to have stabilized. With the arrival of this recession, it has exploded. From 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million. Therefore, if you correctly accounted for all of these people, the peak unemployment rate in this recession would have probably pushed 8 percent.
The point is not whether every person on disability deserves payments. The point is that in previous recessions these people would have been called unemployed. They would have filed for unemployment insurance. They would have shown up in the statistics. They would have helped create a more accurate picture of national unemployment, a crucial barometer we use to measure the performance of the economy, the likelihood of inflation and the state of the job market.
Unfortunately, underreporting unemployment has served the interests of both political parties.
Since then, the number of claims has continued to rise:
(Chart from the SSA)
People are leaving the labor force because they have a better alternative--motherhood or disability payments or early retirement--not because they can't actually find jobs. To be sure, part of the reason that disability is a better alternative is that compensation isn't growing for low-wage workers. But it is also a better alternative because we've made it easier to get on. I make no claims as to whether the people getting disability "should" qualify--but it complicates the labor force story considerably.
Update: Andrew Samwick has more.
I think there is something to the self unemployment argument. In general however, those on disability in my experience as a physician are, how to put it, well perhaps 'disabled' or marginally capable physically or mentally to sustain gainful employment. Now we might say, 'But we have a graph.' Perhaps people used to be in state mental institutions with 2000 patients or featherbedded in a union or city employment or hoboing and shortly dead.
Re: To be sure, part of the reason that disability is a better alternative is that compensation isn't growing for low-wage workers. But it is also a better alternative because we've made it easier to get on
One reason disability was made easier to get is because the Reagan administration had tightened qualifications to the point where people practically had to be on their deathbeds to qualify. And that in reaction to the very lenient rules of the 70s when disability was at least as easy to get as now, maybe more so, and there were lots of "cheaters" collecting SSA checks while working off the books.
A second cause for the increase in disability applications though: after a year a disabled person qualifies for Medicare. That's a big draw for lower income people (and older workers) with health issues who could work, but who have trouble finding jobs with health insurance and can't afford it on their own.
Am I stretching too far when I mentally connect the rising percentage of prime age men in prison to the rising percentage of prime age men not in the work force?
One of the factors in this story that you might want to look at is teenage participation in the labor force and the real minimum wage. Over the last quarter century as we have seen a major decline in the real minimum wage we have seen a sharp drop in the share of teenagers working from almost 60% to barely 40%. While this is only part of the story of the drop in the labor force, it is still part of the story. Of course you could argue that this is a good thing if it implied that teens were investing more time in their education.
the other thing that few bloggers have looked at is that young women --age 25-34 -- participation is no longer rising. Apparently because more are making the decision to stay home and be full time moms. This is in line with the point that the share of families with the wife not working has also flattened out at about 30% in recent years-- it was nearly 60% in 1960.
Shouldn't that last chart be in percentage of population, rather than raw numbers? If retirement and disability *rates* stay the same, it'd be only natural for that line to slope up as the sheer number of people increases...
As for teen participation in the labor force dropping, I tend to agree partially with those who say that immigrant (sometimes illegal) adult labor has been subsituted in place of teenagers. However, I also feel that some study should be made to see if there is a correlation between increasingly stict driving restrictions for teenagers as well in many states. The effects could be two fold: many teenagers are unable to meet minimum hour restrictions to get licenses (to drive to a new job); or they don't see themselves beng able to use a car, therefore why work to pay for that car they could barely drive.
I'd be shocked if compensation was growing much for low wage jobs.
They're low wage precisely because they don't generate a lot of value (ie, they're unproductive), and thus the labor involved isn't worth much.
Prison and the military are an awful lot of the difference between the US and the rest of the West in this regard.
Of course there are a certain class of commentator who would rather comment on a half-million person increase in the disabled number than on the 2.2 million in prison or the 1 million in the US military (both classes of which cost the US tax payer a whole lot more). This is what is know as a "rational, economic view" by the GOP.
How about education?
The millions of students include many in all age groups who choose not to be fully employed.
There are a lot more semi-employed people today: do a little consulting, sell some junk on E-Bay, cash a Google Ads check for their website, and get by one way or another.