At this month’s Democratic National Convention, President Obama talked about “achievable plans that will lead to new jobs, more opportunity and rebuild this economy on a stronger foundation.” He touted the over half a million manufacturing jobs that he created in the last two and a half years, and promised to “reward companies that open new plants and train new workers and create new jobs.” He claimed that his plan will create a million new manufacturing jobs in the next four years. After the jobs nightmare that we’ve been through in the past four years, you don’t need us to tell you that it was pretty inspiring.
Then the August jobs report came out, citing a fall from 8.3% to 8.1% unemployment, with an addition of 96,000 jobs created this month. That sounds like progress…right? Well, yes…and no. Like you learned in math class, it all depends on how you read the chart. So what does the jobs report mean, anyway, and what can the numbers tell us about the real health of our economy?
Jobs Report: The “Employment Situation Report,” better known as the “Jobs Report,” is a monthly report compiling a set of surveys in an attempt to monitor the labor market. It’s released by the U.S. Department of Labor’s Bureau of Labor Statistics and consists of four main figures:
1. Unemployment rate, or the number of unemployed workers as a percentage of the labor force.
2. Non-farm payroll employment, or the number of employees working in U.S. business or government.
3. Average workweek, or the average number of hours per week worked in the non-farm sector.
4. Average hourly earnings, or the average basic hourly rate for major industries.
These numbers are designed to give workers and politicians an idea of where we stand, but the numbers alone aren’t enough — you’ve gotta understand what they mean!
Unemployment: Currently at 8.3%, the U.S. unemployment rate has been stuck around 8% to 9% since the recession began in 2007. This means that 8.3% of the labor force, i.e. those people who want to work and are actively looking for employment, are without a job. It’s not as bad as it was in the early 1980s, when unemployment hit double digits, but considering that it translates into about 14 million people looking for work, it’s not exactly encouraging. The thing that most people don’t know about the unemployment rate is that the lower it goes, it just means that more people have become so disillusioned that they have dropped out of the job market all together. So unemployment rates falling from 9% to 8% are hardly victory: it just means that more people have given up. Which brings us to the number we should really be looking at: underemployment.
Underemployment: Also known as the “U-6 rate,” underemployment captures everyone else affected by a lackluster jobs market, including people who want to work but haven’t looked in the last four weeks because they figured no jobs were available and those working part-time jobs but would prefer full-time positions. At around 15.3%, the national U-6 rate is nearly double the national unemployment rate. Of particular concern is the U-6 rate in California, a state that makes up 13% of our overall economy. California’s unemployment rate is 11.2% — but that’s nothing compared to it’s underemployment rate, at a staggering 20.3%. When you look at it this way, the recent decline in unemployment is far less impressive.
Job Growth: Reporters and politicians like to read splashy headlines about job growth, or how many jobs have been added each month. But the problem is that the number is almost always inflated. Here’s why: Each month, more people join the working age population than retire or die. Consequently, the economy needs to add about 180,000 jobs a month just to keep up with population growth. Subtract 180,000 from the number of jobs that were added and you have a more realistic picture of the net gain in jobs. For example, if the jobs report says that 130,000 new jobs were added, subtract 180,000 for population and you get -50,000…meaning that 50,000 more people will be unemployed because jobs growth isn’t keeping up with population growth. We hate to be depressing, but remember that just because more jobs are added does not mean that fewer people are out of work.