With enthusiasm abounding about the economy adding 280,000 jobs in May, and 3.1 million jobs over the past 12 months (according to the President’s Council of Economic Advisors), pundits are wondering why so many America’s still feel economically insecure. A May 30th Washington Post article noted that “[i]f there was any time for American consumers to feel good, it would be this moment. Job growth is brisk . . . . But six years after the end of the Great Recession, Americans are startlingly anxious about their economic prospects.” Gallup’s Economic Confidence Index slid to -7 in May, better than during the deep recession but down 10 points from as recently as January (when is it was bolstered by low gas prices).
Clearly, Americans are still experiencing economic insecurity with many working class Americans feeling that the recovery simply left them behind. A closer look at what kind of jobs the economy has created post recession and the reasons why the unemployment rate has declined give some insight into why.
For example, while the employable population has increased by 17.5 million people since the recession began, as the Wall Street Journal reported Friday morning, “the economy still has around 550,000 fewer full-time workers than it did before the recession started at the end of 2007.” In other words, all of the increase in employment since the Recession began is a result of an increase in part time jobs. With a population increase of 17.5 million people but 550,000 fewer people holding full time jobs, a little economic insecurity is fairly easy to understand.
Meanwhile, the number of people working part time is up over the same period of time by around 2.8 million. And we needed those part time jobs. Over 7 million people are working two jobs to make ends meet, about 3.8 are working a part time and a full time job. Another 1.9 million are working two part time jobs. According to a recent Federal Reserve Board Report on the Economic Well Being of American Households, “[f]orty-nine percent of part-time workers . . . would prefer to work more hours at their current wage if they were able to do so.” The problem is that they’re unable to do so.
Perhaps as telling, all of the improvement in the unemployment rate from 7.6% when President Obama took office to 5.5% in May has come about because of a serious decline in the labor participation rate (the percentage of people who are either employed or have looked for work in the past month).
When President Obama took office in January of 2009, the labor participation rate was 65.7% and the unemployment rate was 7.6%. A low unemployment rate is far more meaningful if accompanied by high participation in the labor force. By definition, people who drop out of the labor force are unemployed, lowering the percentage of unemployed people remaining in the workforce. May’s participation rate was 62.9%, a full 2.8 percentage points lower than January of 2009.
Had the labor participation rate been 65.7% in May, the unemployment rate would have been 9.6% as opposed to 5.5%. In other words, if labor participation had at least been stable since President Obama took office, unemployment would be 4.1 percentage points higher than it is and 2 percentage points higher than when he took office. As Federal Reserve Chair Janet Yellen stated in a speech last week, “the unemployment rate today probably does not fully capture the extent of slack in the labor market.” The good news: Chairman Yellen gets it.
So where are the workers who are no longer in the labor force? Certainly, some have retired. But, others have just given up the search for a full time job. As Chairman Yellen further stated last week, “a significant number” of people “are not seeking work because they still perceive a lack of good job opportunities.” The BLS reported that in May over 6 million people were “Not in the Labor Force” who “Want a Job Now”. Understanding their economic insecurity is fairly easy as well.
Nor is this decline in labor participation a temporary situation that’s improving. The labor participation rate has now been below 63% (ranging from 62.7% to 62.9%) for 14 consecutive months and 19 of the last 20 months. Prior to the Obama Administration, it was last below 63% 37 years ago in April of 1978 during the Carter Administration.
May’s labor participation rate benefitted from about 100,000 new entrants to the labor force who were unemployed and had never previously worked (mostly students who recently graduated). Let’s hope this new group of students can find some of the economic security that comes with good paying full time jobs.