## Thursday, November 14, 2013

### Oct. 2013 -- Unemployment Really Is 12.4%, not 7.3%

October 2013 Employment Numbers

Unemployment is 12.4%, not 7.3% as of October 31, 2013 --- and 28% of workers are under duress, and 44% in all receive very low annual wage income -- you have to read the entire post.

When I hear the monthly unemployment number I buckle with disbelief, it is misleading.  My frustration this week turned into a blue funk of paralysis, so I sat on my front steps and wondered how to make a convincing case. See here (the unemployment rate) and also look here (Table A-1), both BLS tables I draw on repeatedly in this posting.

December 6, 2013 -- Update --- I can report that the unemployment rate is now 12.0%, an improvement. I use the same metric, that is I maintain that the real labor participation rate should be the 20 year average between 1988 and 2008 which was 66.5%, not this month's 63.0%. I recalibrate the labor force at 163,967,000. This changes all the other rates: labor participation, employment to population, and unemployment rates. The 20 year LFPR average is 3.5% higher than today's new updated rate of 63.0%. Therefore I add 8,630,000 more unemployed for a total unemployed of 19,737,000, and I add to the denominator increasing the labor force to 163,967,000. That leaves an unemployment rate of 12.0%.  -- not 7.0%.

Or Is the True Rate 13.3%?
Here's a curious fact, comparing 2 periods of 5 years --- from Jan. 1995 to Jan 2000 the Labor Force grew by 10.5 million. In the past 5 years it has shrunk by 1.3 million. What if it had grown by 10.5, what would unemployment rate be? 13.3% It's a bit of waste of time, but it shows how severe the unemployment is.
And the U3 Unemployment Rate is 11.9% if one takes the 20 year average (1988 to 2008) labor participation ratio, 66.5% (see here),  --- this yields a labor force of 163,967,000. Then there are (163,967,000 minus 144,386,000 or) 19,581,000 unemployed, instead today's 10,907,000. The U3 rate of 11.9% is closer to reality. The Labor Force Participation Rate is faulty, unrealistically low, causing the other rates to track lower than reality.

Other Sources to look at:

I recommend this thorough analysis by Chad Stone at CPBB.org,
or click here. He compares September with November because October was affected by the government shut-down. This is my conclusion of his data, in his words: "the number of people with a job grew by 83,000.between those two months, that's an improvement of 0.05%, or miniscular.
In short, from last month the Working Age Population increased by 186,000; the Labor Participation increased by 455,000; and the number employed increased by 818,000; and the unemployed decreased by 365,000. This is from the Current Population Survey, not the Establishment Survey which is a lot different, reporting a net increase of 203,000 jobs.
Additional info: go to the National Jobs for All Coalition monthly report on unemployment (they say 10.3% is more accurate than 7.0%), and then go to the Chicago Political Economy Group report (they say since Nov. 2007, the beginning of the jobs disappearance, the "working age population" grew by 13.628 million, the labor force grew by 2.5 million, and the number employed shrunk by 2.3 million. I commented that if the rate of growth in job creation had matched the rate of population growth there would be over 10 million more workers at work today).

The Big Picture
I maintain that 74.7 million workers are either with
1) no job (12%),
2) not enough job (5%),
3) happy with part-time work (12%),
4) full-time and year-round job paying below poverty level for a family of four (11%), or
5) working full-time not-year-round (temp workers) paying less than \$25,000 a year (7%).
That is, in sum, about 46% of the normal labor participation rate (66.5%) population of workers. Of that 46%, some 12% are content with part-time work, leaving 34% who are not content. And that conclusion corresponds, more or less, to the Social Security Administration report that 46.6% of their work force of 153.6 million earned less than \$25,000 a year in 2011.

Is This Boring -- and Average Worker Income?
This is sort of boring, but the general idea: the economy does not employ all the willing workers nor pay them adequately considering how much income it generates, almost \$13 trillion in 2013, which is about \$84,000 a year per worker. The BEA reports
"Per capita personal income (personal income divided by population) in MSAs in 2011 ranged from \$78,504 in Bridgeport-Stamford-Norwalk, Connecticut to \$21,620 in McAllen-Edinburg-Mission, Texas. Per capita personal income for the nation was \$41,560." So multiply the \$41,560 by the total population, then divide by 155 million workers, and \$84,000 a year per worker is pretty close to average worker income! Even including the unemployed workers! Meaning the 20 million unemployed (which is my estimate), or the officially unemployed 11 million are included in the \$80,000 income per year or the \$84,000 per year average (the difference is due to my using different labor force totals). Half of all workers earn on average less than \$10,000. Go figure. What is wrong here? Is my math wrong or is it the economy?
Capitalism extracts income (and labor) from lower-paid workers, but there is a limit to how much it can mine or extract. We've just about reached the limit. But then there is China and Mexico, etc. This is why Dan Alpert's book, The Age of Oversupply, is important. Here's a link to Dean Baker's review of Alpert's book.

I'm still not done. The Last Thirteen Years

Look at private sector employment growth in the last thirteen years, from December 2000 to November 2013 (I'm shy one month). Here's the site (click it) and here's the graph since 1939.

To summarize: since December 2000 to November 2013, private sector employment has gained 3.132 million, an increase of 2.8% in almost 13 years, or 0.22% per year growth. Remember that, 0.22% growth. In comparison, from 1960 to 2000 the annual  growth rate for 40 years was 3.5%. From 1939 to 1944 the annual growth rate was 8.2%. This should tell you something about the power of direct government job creation. The federal government poured billions into the Reconstruction Finance Corporation headed by Jesse H.  Jones who headed this government agency to finance the war effort and wrote Fifty Billion Dollars, his memoir. I'm just at the beginning of this book, it is fascinating to me.
And you may as well read this article by Marshall Auerback describing how the unemployment rate fell from 25% to 9.6% during 1933 to 1937.

The private sector has added 8.058 million jobs since Feb. 2010 (the nadir of private sector employment) up until today, Nov. 2013; but the employment to population ratio has increased from 58.5% to 58.6% -- it hasn't budged. In this period government employment has dropped by 613,000 (see this site). In the last 45  months, to Nov. 2013, 8.058 million private sector jobs have been created, 613,000 public jobs have been eliminated, the employment to population ratio has barely moved. For graph see here.

So, even with 179,000 new private sector jobs created each month since Feb. 2010, the nadir, our ratio of employed to population is stuck at the growth of population, almost. The new normal is 1983, 1981, 1977. The 20 year average E/P ratio is 62.9%, meaning it would take an additional 10.6 million jobs to restore that average. In about 5 years if we doubled the rate of private sector job creation (from 2.15 million per year to 4.3 million per year) to 360,000 per month we would be back at the 20 year average E/P ratio. In any case the unemployment rate, at today's 7.0%, seems far fetched.

But we're not about to double the private sector job growth rate. It will take direct government job creation as I mention on my original blog, the November 2013 entry.
____________________________________________

November's Original Esssay
Now the rest is the original essay from November. It has better graphs and more stuff. Merry Christmas.
Because the labor participation rate has been dropping steadily since the onset of the recession, many would-be workers are left out of the official U3 unemployment rate. I concluded that today's unemployment rate should be 12.4%, not 7.3%. The labor participation rate dropped enormously with the onset of the recession, from 66.0% in a steady decline to today's 62.8%.
The average labor participation rate was 66.5% for the 20 years before the Great Recession, 1988 to 2007. I tediously calculated it from Table A-1 data. Today's rate of 62.8% has not been equaled since 1978. The difference between the 20 year average and today's rate (66.5 less 62.8) is 3.7% of the civilian noninstitutional population of 246,381,000; and that adds back the workers who supposedly are not participating, another 9,116,000, as unemployed. This raises total unemployment to 20,388,000, and it increases the "labor force" to 163,843,000, and the resulting unemployment rate is 12.4%.  My conclusion is that 12.4% is the true U3 unemployment rate.
Here the link to the participation rate, and two graphs showing different year ranges:

And here is private sector employment showing a loss of almost nine million jobs in 24 months, Jan. 2008 to Jan. 2010.

This is the table I used for calculating the average over 20 years,
http://www.bls.gov/web/empsit/cpseea01.htm

If you take the 67.1% participation rate of 1997, 1998, 1999, 2000, and call that the normal participation rate, then U3 reaches 13.2%.
With an unemployment rate of 12.4%, the U6 rate rises also, to over 18%.
"Participation" is not quiet accurate, but I can't think of another word for it.  Workers are drawn by the demand for hiring, not by a vague urge to participate. Here is a chart from the U.S. Census showing the "Employment Size of Firms" and that in 2008 121 million workers were employed in firms or corporations, 83% in firms with more than 20 employees, and 50% in firms with more than 500 employees.
With an Employer of Last Resort policy the labor participation rate could be much higher.

The highest rate, 67.1%, lasted four years, 1997, 1998, 1999, and 2000. How high could it go?
The rate of 2000 may be too low. A policy of Employer of Last Resort has the potential to draw a higher participation rate. This would create full employment. See this essay by Pavlina Tcherneva from the Levy Economics Institute.

Dis-employment and Re-employment
How many new jobs are needed to restore pre-2008 employment to population levels? The Recession began at December 2007, the job loss began and reached a nadir about two years later, and basically maintained the nadir.
Here's the graph from CPEG, The Chicago Political Economy Group. They put up a great report from which these next two graphs come:

Nearly six years after the ping-pong ball fell off the table, it's still rolling on the ground. That is not recovery, it is not 7.3% unemployment. It is more like 12.4%.
This next graph, also from CPEG, shows the recovery of jobs to the pre-recession jobs' level before each post-WWII recession.
Here is the employment to population ratio.

"As can be seen in Figure 2, based on this measure there has been virtually no jobs recovery at all in the 45 month of “expansion” from the June 2009 LD trough," states the CPEG commentary.

The historical tables from 1978 to the present from the BLS show the relevant data: http://www.bls.gov/web/empsit/cpseea01.htm

And finally, here is the employment to population ratio from the bls site (search for it at "bls data employment to population ratio"). This is a repeat of sorts of the first CPEG graph.

Going Beyond 12% to 44%
One in eight workers unemployed, 12%, that's bad, but 44% of all workers, that's critical. 44% earned yearly wage income of less than \$23,060, the poverty level for a family of four. In fact the average wage income for the lower-earning 76 million workers,  half of all workers, is less than \$10,000, while the average income for all workers is \$84,000. How I get there follows.

The National Jobs for All Coalition provides a monthly breakdown of the unemployment numbers. From them I add additional facts. I calculate 20.3 million unemployed, 12.4%. The U6 rate would add 8.1 million part-time workers (5.0%) who want full-time work. As I have increased the labor force to 163 million, the U6 rate increases to only 17.4%. (28.4 million workers). (See this source: http://www.bls.gov/news.release/empsit.t15.htm) To that they add 18.0 million full-time and year-round workers (11.0%) who "earned less than the official poverty rate for a family of four". That reveals 28.4% or 45.7 million workers who have either no job (12%), or not enough job (5%), or a full-time year-round job with lousy pay (11%). That is where 28% or over 45 million of the nation's willing workers stand today in this jobs market.

Look at the Social Security Administration's wage income report for 2012. Earning wage income below \$25,000 a year are 46.7% of all workers (about 72 million workers out of 153 million). Their combined income is about \$745 billion. This is about 6% of all personal income (see my other blog, my October 22, 2013 and last posting). I calculate that about 44% of all workers earned in wages for 2012 less than \$23,050 which is the poverty level for a family of four. So to jump from 28% to 44% we have to add the 12% who are voluntary part-timers (28% from above plus 12% gives us 40%) and the last 4% we will classify as temporary workers with low incomes. 44% of U.S. workers earning below poverty level for a family of four.  As I stated in a previous essay, half of the workers receive less than 7% of all personal income. Something seems very wrong with this economy. You are free to disagree, but you will have to explain how such an unequal distribution is a normal and beneficial attribute of a vibrant society.

Historical income distribution:

Go to TooMuch, a marvelous weekly newsletter, see December 2, 2013, for the above graph. The top 10% earn more income than the lower 90% of households. Do ten percent do an equal amount or more of the nation's labor as ninety percent? Since 1967 the lower-earning 90% have lost 15.6% of all personal income, almost \$19,000 in yearly income for all, each and every household, in the lower-earning 90%.
Congratulations if you read all this. In my opinion a capitalist economy is doomed with income distribution such as this.  A self-sustaining expansion is the sine qua non, the holy grail, the essential condition of a stable economy, and without a balance of income and wealth distribution, not only will it not self-expand organically, it will be unfair and tend to deteriorate. Organically it can't work, so it's doomed. Here's the CBO report (page xi) on the change in income distribution between 1979 and 2008:  "As a result of that uneven growth, the share of total market income received by the top 1 percent of the population more than doubled between 1979 and 2007, growing from about 10 percent to more than 20 percent." Here's another site showing income distribution for 2013. It's in a non-virtuous cycle and will continue to deteriorate slowly. Maybe we should consider a high financial transaction tax and apply the revenue to direct government job creation? See this 2009 report from CPEG

The misleading 7.3% unemployment rate number imparts a false glow of improvement on what is really a dire situation. It should be twice and even 4 times or 6 times greater when thinking of how many have decent paying jobs.