Unemployment Rate Hides the Historically Low Employment Rate
Doug Henwood explains how employment relative to total population reveals a better image of employment than the unemployment rate. Using this measure, employment is nowhere near where it was before the Great Recession.
SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
Last week the U.S. Department of Labor released new unemployment figures. The numbers indicate that even though unemployment claims rose slightly in the first half of April, unemployment claims remain at a 17-year low. The unemployment rate is now at 4.5%.
Of course, the Trump Administration is trying to take credit for this. Earlier, however, candidate Trump tried to cast doubt on the low unemployment numbers for which President Obama was getting credit at the time. Here is Sean Spicer, Press Secretary, recently trying to defend Trump’s claim and flip-flopping.
REPORTER: In the past the President has referred to particular job reports as phony or totally fiction because the President believed that this jobs report was accurate and a fair way to measure the economy?
SHEAN SPICER: Yeah, I talked to the President prior to this, and he said to quote him very clearly. They may have been phony in the past but it’s very real now.
SHARMINI PERIES: What is behind these numbers? Do the unemployment numbers tell us something meaningful about the state of the U.S. economy? Joining us now to discuss this is Doug Henwood. Doug is the editor of “The Left Business Observer” and is the host of the radio program, “Behind the News”. He recently wrote an article titled, “How Employed Are We?” Thanks for joining us today, Doug.
DOUG HENWOOD: Thanks for having me.
SHARMINI PERIES: So, Doug, let’s start with this dispute between candidate Trump versus President Trump. Who is right? Are the unemployment numbers cooked, or are they meaningful to us?
DOUG HENWOOD: I just have to say you don’t know exactly what spirit to take these Trump remarks in. I guess the way that might be the most best for your mental health is just to take it all as a form of dark humor. But the consequences are very, very severe. Obviously, and Spicer too, neither of them really know what they’re talking about when it comes to this.
The unemployment numbers are very rigorously done. You can complain about the definitions of them, but they’re completely rigorously done. They’re composed from a survey of about 60,000 households every month. It’s a very large survey. Your typical opinion poll is maybe 1,000 or 1,500 respondents. This is 60,000 people. The Census Bureau in partnership with the Bureau of Labor and Statistics has been doing this survey since 1948.
They really know what they’re doing. And as I said, you could dispute the definitions, but the numbers are the highest quality that you could imagine. And they do a remarkable job getting these things out every month. And then when they compare them, every year with the complete count, an almost perfectly complete count of employment that you can get through the Unemployment Insurance system. They adjust them by no more than one-tenth, or two-tenths, of a percentage point. It’s very, very accurate and done within less than a month of the close of the month. So, it’s a very impressive job they do.
SHARMINI PERIES: Right. Your article points out some interesting trends in the employment market, the way you focus on the employment-to-population ratio. What briefly does this ratio tell us about the development of employment over the last 20 years or so?
DOUG HENWOOD: Well, as I said at first, you can dispute the definition of unemployment. And one of the reasons the people dispute it, is that you have to have looked actively for work in the previous month to be counted as unemployed. If you’ve given up the job search as hopeless, you may be counted as discouraged, or outside the labor force, but you’re not part of that official unemployment rate.
Now, the reason for that is that employers care about people with fresh skills. They care about people who are relevant to the wage setting process, who are a figure in how tight or how loose the labor market is, and how much power workers have in the current job market. If the unemployment rate is low, if there aren’t that many workers in the sidelines, then they’re in a much stronger bargaining position, demanding better pay or better conditions. If the unemployment rate is high, then they are in a much weaker bargaining position.
But what Spicer and Trump have been getting after in their extremely inarticulate and ignorant way is something that the employment to population ratio measures. That’s the number of people who are working for pay, and I always say for pay because there are lots of people who are not working for pay or nonetheless working very hard, particularly women.
But that’s the number of people who are working for pay divided by the number of the population over 16 in the entire country. That doesn’t include people who are in jail, or in mental institutions, or in nursing homes, the so-called non-institutional population. But it’s basically a measure of how much of the population is working for pay. And what’s happened to that over the long-term is of great interest. It’s declined massively. Since they started doing this in the late 1940s, for men. And it’s rose very sharply from roughly 1948 through 2000 or so for women. And then this stayed flat to down ever since.
The employment to population ratio took a very, very severe hit during the Great Recession from 2008 to 2010. And has recovered some but it’s not reached its former 2007 peak. And it’s especially not returned to its peak in 2000, which was the strongest job market we’ve seen in a very, very long time. So, yes, we’ve recovered a lot. Yes, the unemployment rate has come down. But part of the reason for that is a bunch of the population has just dropped out of the labor force for various reasons.
SHARMINI PERIES: And so, these would be people that have been looking for work for a very long time and then finally given up and fallen off the labor market. So, address that and does it also include people that are under-employed that have great skills but are driving taxis? Or is doing, you know, work just to stay alive, rather than what they’re professionally trained to do?
DOUG HENWOOD: I’ll start with the second question first. No, because there’s really no good way to measure under-employment. I remember once I talked to a statistician at the BLS about precisely that. And he said, “Say a violin player is driving a cab. What if he’s not a very good violin player?” And it’s just extremely difficult to measure.
We know there are lots of people who have college degrees who are working in non-college jobs. There is some data on that. We do know, of course, there are an awful lot of people are certainly not using their full skills in the labor market, and certainly not being well paid for it. But it’s very hard to put an exact number on that.
But the reason the unemployment-population ratio is not behaving as well as it had in previous expansions is complicated. Part of the reason is, the population is just getting older. And as people get older, they’re more and more are likely to retire or get sick or disabled, or otherwise drop out of the labor force. So, there’s some of that going on. The baby boomers are, you know, inching into retirement. And that’s showing up in the employment-population ratio.
Although, the oldest workers are actually showing a rise in the employment-population ratio, unlike younger workers, which, I presume, is because they can’t afford to retire. But yeah, the aging population by my estimate is responsible for about half of the weakness in the employment-population ratio.
The other part of it is we’ve got very, very weak economic growth, and it’s just not generating much employment. And it’s not robots. The robots are not stealing our jobs. Productivity is actually very, very weak. Productivity growth is close to zero in the U.S. economy, and also in most of the advanced economies in the world.
But it’s just that economic growth in this expansion since the recession ended in 2009, is less than half the average rate for a post-World War II expansion. It’s just a very stagnant, weak economy. There are a number of reasons for that which I’m happy to discuss but that is–
SHARMINI PERIES: Can you outline a few of the reasons, in terms of low GDP growth. Is that the main cause of these numbers?
DOUG HENWOOD: Yeah, like I said, you know, the half that isn’t the result of the aging population is probably the result of that weak economic growth. And what is behind that? I think several things are behind that. One is that we had an extremely severe financial crisis and a very, very deep recession. That sort of thing leaves scars that make companies very reluctant to invest, drive a lot of workers out of the labor force, causes people’s skills to atrophy.
Damage to the financial system makes credit difficult to get, which makes it difficult to open or expand businesses. And the rate of business formation had been very, very low for years. It’s recovering, but it’s been very low. And new businesses, not very, very new, but ones that are a few years old are the ones that really generate the most employment growth. So, that weakness in business formation is part of the reason.
But there is also something going on with larger companies, especially. And they are not really investing very much, they’re not expanding, they’re not hiring. They’re not doing things that capitalist enterprises are supposed to do in return for their profit. They’re just taking the profit and giving just wads and wads of it to their shareholders. Phenomenal amounts of corporate surplus are being shoveled out to shareholders, who either pocket the money in the form of capital gains, or in portfolio management fees.
So, it’s just an enormous racket in which very, very flush corporations rather than investing in hiring, like they’re supposed to, are giving all their money to their shareholders. Or also stashing it overseas in tax havens to avoid paying taxes up here in the U.S. So, we’ve got trillions of dollars really, literally trillions of dollars stashed abroad to avoid taxation. And companies are rather just let it sit there in some offshore account rather than bring it back home. Because they just hate paying taxes.
SHARMINI PERIES: Right. And what do you make of the argument that GDP growth in developing countries is always going to be lower than in less developed countries? Because they have less room to grow, so they say. In other words, China and India for example, grow faster because they have more catching up to do. Is this a bad argument for low growth in the U.S.?
DOUG HENWOOD: No, there’s a lot to that argument. Certainly, although Chinese growth now is, I believe, is below 7% — which for them is a terrible number. But, you know, here in the U.S. it’s been averaging about 2% maybe we’re going to hear in a couple of days what the first quarter results were.
But people are expecting it’s more like 1%, which is very risky actually. As the economy… as GDP growth slows towards 1% it’s often considered something of a stall speed, to use a common metaphor. That it just happens just before a recession. So, you know, this slow growth is a problem. It’s an economic problem.
So, we could be doing better than we are though. You know, 1-2% is very weak. It doesn’t really generate as much job growth as it should. And you know, you get the 3% range, then we’d be doing a lot better. You know, leaving aside all the issues about the damaging side effects of economic growth like you know pollution and climate change.
But, as long as we have the model we have, slow growth is pretty hard on most people. It’s also hard on government finances. If the economy is growing slowly, governments are not getting revenue and they have to cut programs. So, this kind of slow growth under our current system is very, very economically stressing.
SHARMINI PERIES: Hmm. Doug, I thank you so much for joining us and explaining all these numbers to us. And Doug is editor of “The Left Business Observer” and the Host of the radio Program “Behind the News”. Thank you, Doug.
DOUG HENWOOD: Thank you.
SHARMINI PERIES: And thank you for joining us, here on The Real News Network.