When the Bureau of Labor Statistics (BLS) reported that July’s unemployment rate was only 5 percent, President Bush interrupted his five-week vacation to take credit for a strong economy. But a report released earlier this summer strikes a jarring note.
Katherine Bradbury, senior economist at the Federal Reserve Bank of Boston, took a closer look at the numbers. Her conclusion: there may be as many as 5.1 million additional workers who are unemployed but are not counted. When they are added to the 7.5 million officially unemployed, the unemployment rate rises to 8 percent. (Part-timers are not discussed in her analysis, but if we add those who want full-time work, unemployment reaches 11 percent.)
The BLS has always understated the real unemployment rate. But Bradbury’s research indicates that there are far more missing workers today than after recessions in the past.
Many unemployed give up looking for work, surviving on the earnings of their spouse, or parents, or savings, or loans, or what’s left of welfare. Economists say they are no longer participating in the labor force; this shows up as a drop in the labor force participation rate (LFPR) — the percentage of the population (excluding prisoners and military personnel) that is working or actively looking for work.
The LFPR always declines during a recession, as people give up hope of finding a job. After past recessions, discouraged workers have come back into the labor force. But in this “recovery,” the LFPR has stayed stubbornly low. Depending on different assumptions about long-term trends, Bradbury estimates that there are between 1.6 million and 5.1 million additional workers missing today, compared with a similar stage in previous business cycles. In my opinion, the correct figure is closer to the higher number (5.1 million).
Note that these are in addition to all workers who are not counted even in “normal” times. It is possible, using reasonable assumptions about the labor force, to make additional estimates of workers missing from specific sections of the population. Using similar methods, I estimate that the real unemployment rate now for African American men aged 25-55 is close to 20 percent.
Media ignores facts
The exceptional thing about Bradbury’s report is the thoroughness of her analysis and the credentials of the author. Coming from the Federal Reserve Bank, Bradbury’s report should have been front-page news. But it was hardly mentioned in the mainstream media, and is never mentioned when employment news is reported. The media’s uncritical echoes of Bush’s boasts of a strong economy contribute to a false impression. The issue of millions of missing workers deserves far more attention, and can be especially important in assessing this administration’s record during the 2006 congressional elections.
Most unemployed don’t collect comp
The issue of hidden unemployment is important for at least two additional reasons.
First, Only 2.5 million jobless workers are collecting unemployment compensation. Counting the missing workers, there are 10 million who are officially unemployed but cannot collect. At the height of the recession, there were demands to broaden eligibility for unemployment insurance, improve benefits, and extend the period that benefits could be collected. The Bush administration responded with a miserly 13-week extension, which it allowed to end in December 2003. But workers are still exhausting their six-month benefits at the rate of almost 3 million per year. Bradbury’s report is important ammunition for a new campaign on this issue.
Program for job creation needed
Second, the Bush administration has been crowing about strong job creation, which has averaged about 190,000 per month over the past year. This is actually not much better than the 140,000 needed to keep up with population growth. Counting hidden unemployment, more than 12 million new jobs are needed — 20 years’ worth at present rates. A program to meet the many unmet needs in this country for physical infrastructure (schools, mass transit, sustainable energy, affordable housing) and social services (education and health, child and elder care) would provide useful, productive jobs for millions.
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