New Jobs and Labor Force Growth

To give the monthly employment report a little more precise context, I thought I’d look at trends in the growth of the labor force. The two sources I’ve consulted, both reports by the Bureau of Labor Statistics, present labor force growth projections, thus the age group 16 years old and older. The sources are here (Table 5) and here (Table 4). Very interesting.

Demography rules. What the data show is that the U.S. workforce is growing more slowly as the very large baby boom generation exits the workplace and is replaced by much smaller cohorts. I’ve taken the BLS demographic data and have expressed them as “new jobs needed every month to keep up with the growth of the workforce.” Looking at this requirement decade by decade, we get the following picture:

In the 1980s we had to add nearly 150,000 jobs every month just to keep up with new entrants to the workforce. Each succeeding decade, that minimum has dropped. At the present time, we need to add, on average 87,300 jobs just to keep afloat, as it were.

After a massive recession, such as the one we say in the 2008-2009 period—in which we lost 8.7 million jobs—only jobs above that minimum may be counted as recovery. Therefore, with relatively low levels of job creation, recovery is doubly slow. Here for instance are average monthly data to the period of recovery thus far, 2010-2012. Data for 2012 are based on six months’ results.

Year	New Entrants (Average) per month	New Jobs Created per month	Jobs assignable to the “Recovery”
2010	87,300	78,300	-9,000
2011	87,300	158,800	71,500
2012	87,300	153,700	66,400

Based on these numbers, of total jobs added in the 2010-2012 period (3.8 million), only 1.1 million were actually genuine “recovery.” The rest were just keeping up with a growing labor force—however slowly it may be growing.

The slow-down in the growth of the labor force also means that fewer people are actively working and, by their taxes, supporting the total population: the young and the old. Looked at this way, things look more grim to me. And perhaps the reason why the economy is not spouting like a brand-new, feisty young fountain is because, well, it’s an old fountain and the piping is corroded.

“Shadow” Unemployment

In yesterday’s post I summarized how the Bureau of Labor Statistics defines unemployment. To repeat that definition, someone is considered unemployed—and, importantly, therefore also counted as a member of the civilian labor force—if he or she is out of a job, seeking work, and available to work. Here the meaning of “seeking work” is important. The individuals has to have made an effort to get a job within the last four weeks. Note that this definition does not include “is receiving unemployment benefits now”; the individual may or may not be receiving benefits.

The definition of the labor force is Labor Force = those working plus those officially unemployed.

Very well. The BLS also tallies other categories of people the bureau defines as “Not in the Labor Force, Want a Job Now.” That’s a curious definition, isn’t it? What does it mean? It is the count of all those people who (1) are not working, (2) want to work, (3) are available for work, but (4) have not sought employment in the last four weeks. Using annual averages and seasonally unadjusted raw counts, in 2010 the officially unemployed were 14.825 million and the Want-to-Work but Not-in-Labor-Force were 6.059 million. That’s a lot of people. In 2011, using a 6-month rather than a 12-month average, the same numbers were 14.101 and 6.621 million. Put another way, instead 14 million people seeking jobs this years (so far), actually nearly 21 million people want to work. In 2011, thus far, the official unemployment rate is 9.2 percent. But if we add the shadow unemployed to the labor force as well, and then calculate the shadow unemployment rate, it stands at 13.5 percent.

Those 6.6 million Want-to-Workers break down into three categories. (1) Those who are not discouraged, (2) those who are discouraged—and it is because of discouragement that they did not seek a job in the last four weeks—and finally (3) those whom BLS labels “marginally attached to the labor force.” BLS defines such people as those who did not seek employment because of interfering tasks or conditions: school or family responsibilities, ill health, or transportation problems. The biggest category is the first, those who Want to Work but are not discouraged, 4.068 million, next are the “Marginals,” 1.598 million, and the smallest category is the Discouraged, 955,000. Herewith a graphic presenting all of these categories, including the officially unemployed, for the period 2001 through 2011 (6 months).

Looking at this chart I note that throughout this period the shadow unemployment is present, in good times as well as in bad. Source of the data is this BLS facility and others tables reachable from there. The number of those Officially Unemployed has grown at a rate of 7.6 percent a year, the number of Want-to-Workers in the shadow by 3.7 percent. Within this last broad group, those not discouraged grew 2 percent a year, those discouraged by a whopping 11.5 percent, and those viewed as on the margin at 5.4 percent a year. The discouraged are a visibly larger portion of total in the graphic in the last three years.

Through the 2001-2008 period, the difference between the official and the shadow unemployment rate was right around 3.2 percent. In 2001 the official rate was 4.7 percent, the shadow rate 7.9 percent. Beginning in 2009, the difference rose to 3.8, in 2010 to 3.9, and in 2011 to 4.3 percent. In that last year, the official rate was 9.2 and the shadow rate 13.5 percent. The shadow rate is calculated by defining the civilian labor force as made up of all those employed, all those officially unemployed, and all those who want to work but are excluded from the official definition of the unemployed.

As a general rule of thumb, therefore, we can mentally adjust the official rate by adding about 3 percentage points to it. And in dreary times like the current, it’s best to add 4 points to the official rate to stay in sympathy with those in the total population who want to participate in the so-called American dream—but cannot.