Unemployment is low, but that’s only part of the story

Unemployment is low, but that’s only part of the story

These should be the best of times for working people.

















After all, the unemployment rate is just 3.7 percent, near its lowest level in almost 50 years. If that were our only guide, then we might conclude that virtually every adult in the United States who wants to work is either doing so or is diligently looking for a job.

The problem is that the unemployment rate, which is publicly updated by the Labor Department on the first Friday of every month, is an insufficient statistic, despite all the attention it gets. Sure, it tabulates the number of men and women who are actively job-hunting. But it leaves out the growing numbers who have stopped actively looking.

In the federal government’s scheme of things, those who stop looking for work aren’t listed as unemployed. The Labor Department has a broader monthly statistic that accounts for the dropouts, but it doesn’t get equal billing with the unemployment rate. It is called the labor force participation rate, and if it received the attention that it deserves, then the June job numbers, published and broadcast in early July, would have been stripped of some of the glow they seemed to have.

A more complete approach — and, under current conditions, a more accurate one — would give equal billing to both statistics: The unemployment rate was only 3.7 percent in June, near its lowest level since 1969, as tens of thousands of people gave up actively looking for another job. But in doing so, the dropouts meant the labor force participation rate was stuck at 62.9 percent, near its lowest level since 1977.

Most accounts of the June job numbers didn’t use that double-barreled, and sobering, approach to reporting the figures. Yet a falling participation rate suggests a growing accumulation of men and women who are neither working nor unemployed, but rather disengaged.

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For example, if 300 people look for work — thus participating in the labor force — and 290 find jobs, then the unemployment rate is just 3 percent (10 divided by 300). Going a step further, let’s posit that an additional 300 people would like jobs but aren’t actively hunting, or so they tell government pollsters conducting the monthly household survey on which the employment figures are based.

The failure to actively seek a job bars the 300 from being listed as unemployed, as the Labor Department has traditionally defined the concept. They are in a different category — let’s call it the passively unemployed — and their existence is often played down, when it is mentioned at all.

Related video: US adds 224,000 jobs in June; jobless rate rises to 3.7% (provided by Bloomberg)

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But that distorts reality. If the passively unemployed were added to the standard rolls of the unemployed in this example, then the official unemployment rate would be a much higher 48 percent (290 divided by 600). Increase the denominator and, presto, the unemployment rate is worse.

President Trump is not likely to authorize a change that would increase the unemployment rate on his watch simply by altering the rules the Labor Department uses. No president would, or has. But journalists could give equal billing each month to the currently low unemployment rate (the good news) and the low participation rate (the bad news).

A more accurate statistical picture would emerge of all those who wanted jobs even though only some of them were actively looking. A low participation rate — the current situation — is a serious matter. It undermines the production of goods and services in the United States, and may also signal deeper issues.

“You run into the problem of losing economic output when people drop out of work,” said Richard B. Freeman, a labor economist at Harvard and at the National Bureau of Economic Research. “If you are not in school and not in work or actively searching for a job, you are not involved in society, and you are more likely to engage in antisocial activities.”

With the appropriate focus on both the unemployment rate and the labor force participation rate, Americans would be fully aware that while nearly everyone who has actively sought a job recently has one, an awful lot of people aren’t bothering to look at all. Perhaps a spouse is earning enough, or the wages on offer for available jobs are too low, or the commute to an acceptable job is too long, or child-care is too expensive or the working conditions are too difficult.

The decline in the labor force participation rate stems partly from demographic change: Older people typically don’t participate in the work force to the degree that younger people do, and the American population has been aging. Several economists, including Jason Furman, the former chairman of President Obama’s Council of Economic Advisers, make this point.

But whatever the reason, many people who once yearned for work now no longer openly do so, much less seek paid employment.

Many of the dropouts in recent years have been women. Since April 2000, the participation rate among women has fallen 3.2 percentage points, to 57.1 percent from 60.3 percent. That is the largest decline since women started entering the labor force in large numbers in the 1960s. Men, in contrast, have been dropping out gradually since the 1960s, although the decline accelerated slightly a decade ago.

We don’t entirely know why this has been happening for either gender, but the failure to highlight both the unemployment rate and the labor force participation rate in reporting on the monthly employment figures contributes to a failure to fully recognize and explore a source of discontent in the country.

That has been a gift to Mr. Trump, who has given himself and his administration credit for the 3.7 percent unemployment rate while failing to note that it would have been noticeably higher if more people who wanted jobs had actively looked for paid employment, thus “participating” in the economy.

But he isn’t the first president to pat himself on the back for a low unemployment rate while failing to spotlight the swollen corps of non-participants. Most recently, President George W. Bush and President Barack Obama also tolerated the practice, although the labor force participation rate fell quite noticeably during their administrations.

From a politician’s point of view, it’s desirable to sidestep bad news. But journalists don’t need to accept the practice. We’ve been following the government’s lead, headlining the latest unemployment rate and consigning the participation rate to a later paragraph or ignoring it altogether, as if it didn’t much matter. It does.

Louis Uchitelle, who covered economics for The New York Times for more than 20 years, is the author of “Making It: Why Manufacturing Still Matters.”

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