Two separate measures of U.S. employment tell different stories

Last week, the Bureau of Labor Statistics stated that unemployment had fallen to 8.8 percent, with 34 states claiming a decrease in their unemployment rates. Yet the employment-to-population ratio is now lower than it was when the recession officially ended, and the share of employed Americans also fell to 45.4 percent, the lowest level since 1983. Here in Louisiana, only 41.6 percent of working age individuals are employed, excluding military personnel and the self-employed.

Edward Leamer, professor of economics at University of California at Los Angeles, claims that the employment-to-population ratio is a better measure of the job market. Unlike the unemployment rate, changes in labor participation do not affect the statistic.

“It’s people getting so discouraged that they’re dropping out,” said Leamer. He says about half of the decrease in the unemployment rate during the last four months was caused by Americans who gave up looking for work and left the labor force, also known as “discouraged workers”.

Robert Higgs, Senior Fellow at the Independent Institute, states that measuring unemployment is “fraught with many difficulties,” specifically, “the extent to which someone is actually, actively ‘seeking employment.’”

Alan Krueger, former Treasury official and Princeton economics professor, studied the effects of long-term unemployment at Stockholm University. His study concluded that the longer people are without a job, the less time they spend looking for employment.

According to the Bureau of Labor Statistics, since 2009 the number of people who have been out of work for more than six months has increased by 40 percent.

Various theories have been proposed for persistent dysfunction within the labor market, despite pronouncements of recovery.

Leamer claims that we are experiencing technological unemployment – rapidly changing labor needs in the presence of transitioning technology. Kruger, on the other hand, believes the fault lies with the U.S. education system, for not providing pupils with employable skills.

A working paper by Michael Spence and Sandile Hlatshwayo of New York University revealed that most of the growth in employment between 1990 and 2008 was in the nontradeable sector of the economy. That means commodities not subject to international competition, with government and health care jobs accounting for 40 percent of growth.

The same study saw value-added per person, or the difference between the sale price and cost of production, grow by only 0.7 percent in the almost 20 year period. That appears to explain the limited wage gains. Value-added per person in the tradeable area, which includes manufacturing and financial services, grew an average of 2.3 percent per year.

However, the tradeable area created few jobs, particularly in manufacturing, since many jobs were subject to international competition, and thus moved overseas.

The result appears to have been growing income inequality, since many of the jobs created in the U.S. were low or modestly paid.

“No matter how wealthy you are, you have a problem if half the population is not working and depending on those who are,” says John Goodman, president of the National Center for Policy Analysis.

Robert Ross is a researcher and social media strategist with the Pelican Institute for Public Policy. He can be contacted at rross@pelicanpolicy.org, and you can follow him on twitter.