One big reason the official statistics show a low unemployment rate is because so many people have quit looking for work
This article by Bob Funk, CEO and board chairman of Express Employment Professionals, appeared in the Wall Street Journal of July 15.
Seldom has the unemployment rate been so low while public dissatisfaction has been so high. In 2000, when the unemployment rate was below 5%, just 37% of the country was dissatisfied with the way things were going, according to the Gallup organization. In 1988, the unemployment rate was 5.5% and a minority of the country, 47%, were dissatisfied.
With the latest jobs report pegging unemployment at 4.9%, Americans should be similarly satisfied, yet an astounding 69% tell Gallup that they’re dissatisfied with the way things are going.
One big reason the official statistics show a low unemployment rate is because so many people have quit looking for work. A recent Harris Poll conducted for my company, which places people in jobs, showed that 43% of the unemployed have given up looking. The labor-force participation rate today stands at 62.7%, stuck at levels not seen since the late 1970s, before women fully entered the workforce
Employers know that the real rate of unemployment is higher than 4.9%. People who aren’t looking for a job don’t get counted when the government calculates the unemployment rate, but they count when employers decide what wages to pay. So employers today don’t feel pressure to increase wages as they would if the unemployment rate were truly low.
Economists say that some decline in labor-force participation was expected. After all, the baby-boomer generation is reaching retirement age, and a greater number of younger Americans are pursuing higher education. But economists didn’t expect this much of a decline. According to a study from the Federal Reserve Bank of Atlanta, less than half of the decline from 2007 to 2014 can be explained by long-term demographic trends like an aging population and increased schooling among the young.
Among other major economies of the world, the U.S. is practically the only one facing this problem. According to a report from the Organization for Economic Cooperation and Development that looked at labor-force participation in 38 developed countries between 2000 and 2014, only three nations showed shrinking labor forces for workers in the 15 to 64 age range, and the U.S. was one of them, along with Denmark and Norway. Among the reasons cited for the declining labor force in the U.S. is working-age individuals giving up on finding a job.
People need hope. They expect to be able to find a job and, if they do well, see their wages rise over time. Instead, this economy is stuck for too many Americans, particularly the unskilled.
Better job-training programs are essential. Education, particularly for low-income Americans, needs reform, including loosening the grip of teachers unions and expanding school choice. Community colleges and vocational schools must work harder to make themselves solid alternatives to four-year degrees. Government payments, particularly for disability programs—which have risen by 29%-44% since 2003 among working-age Americans—need to be reined in so that they don’t become a disincentive to work.
Meanwhile, as long as the labor-force participation rate remains so low, don’t let anyone tell you the unemployment rate is 4.9%. Just ask those who have quit looking for a job; they know it’s much higher.