One of the frustrating things about the monthly US jobs report is the way
everyone focuses on the wrong number. The headline says "unemployment falls..." which
sounds great, while the small print, which almost no one seems to read, explains
that most of the improvement is due to people dropping out of the labor force.
The number of new jobs created is frequently small or negative.
It's understandable -- though of course not admirable -- that the government
would try to spin its economic statistics to make itself look good. What is
less understandable is why the media, whose job is supposedly to report the
truth, are willing to take the lie at face value.
So it's worth noting when someone breaks from the pack and actually analyzes
the data, as the New York Times did today:
South Carolina's unemployment rate dropped to 5.3 percent in April, lower than
in December 2007, when it stood at 5.5 percent on the eve of the Great Recession.
The share of South Carolina adults with jobs, however, has barely rebounded.
The same contrast is visible in most states. Unemployment rates, the most
familiar and famous of labor market indicators, are nearing pre-recession
lows. But the shares of adults with jobs -- or employment rates -- look much
less healthy.
The reason is that the numbers are not quite two sides of a coin. The employment
rate counts everyone with a job, while the unemployment rate counts only
people actively seeking work. It excludes most people who are unemployed.
After most recessions, the numbers have moved in sync as the share of the
population neither working nor looking has remained fairly constant. But
after this recession, the middle ground has ballooned as fewer people try
to find jobs.
As a result, the employment rate has become the more accurate indicator
of the nation's sluggish and perhaps permanently incomplete economic recovery.
It shows that the economy is improving. Employment rates have climbed above
the post-recession nadir in every state, although the improvements are often
quite small. In Mississippi, the employment rate is just 0.1 percent above
its recent low.
It also shows that the recovery has a long way to go. Employment rates have
rebounded in some states with strong growth, like Utah, Nebraska and Montana.
But only three states -- Maine, Texas and Utah -- have retraced more than
half their losses.
The slow progress hints at a bleak reality. Most economists do not expect
employment rates to rebound completely. A growing share of adults is too
old to work, because baby boomers are aging into retirement while fewer immigrants
are arriving to take their places in the work force. The share of workers
claiming disability benefits, or retiring early, also increased sharply in
recent years.
Here's a chart from John Williams at ShadowStats showing
how unemployment would look if the government counted the people dropping out
of the workforce as unemployed. The blue line includes all drop-outs, and is
not only at Depression-era levels but is still rising.
In an honest world, this "bleak reality," as the New York Times puts it, would
be the story. And though the Times omits the obvious discussion of why the
government is focusing on the wrong number, the paper still deserves recognition
for lifting the curtain a bit.
