Opinion and Economic Analysis

HICKS: Labor market woes persist as recession wanes

October 10, 2009

In a country of more than 300 million souls, getting quick answers on how many folks are working at any given time is a difficult task. On top of that, the definitions of employment make a full understanding of the matter a bit slippery.

As of the end of September, the Bureau of Labor Statistics reports a bit more than 154 million Americans were in the labor force. These numbers are derived from household surveys. Of those in the labor force, more than 15 million were unemployed. This ratio gives us the unemployment rate. But there’s more to the story.

Despite population increases, the size of the U.S. labor force is decreasing. Part of this may be demographic, with older workers opting to retire as the baby boom ages. However, part of this is because of “discouraged workers,” those folks who’ve given up on finding employment.

It should be no surprise that many of these folks are still working, but at jobs not reported to the Bureau of Labor Statistics. The best estimate I have seen of this “shadow economy” suggests that more than 10 percent of the economy is attributable to under-the-table work. Most of the money made in this economy is through illegal activities, like the sale of drugs, but most of the workers are involved in legal activities that simply aren’t reported. These include nannies, baby-sitters and the guy who delivers those two cords of wood for winter.

The underlying dynamic of labor markets is also ripe for confusion. In a normal three-month period, as many as one in eight jobs changes hands. The vastness of job turnover far exceeds the actual number of unemployed over any given period. So, the problem isn’t necessarily a big spike in job losses, but in much lower job-creation numbers.

At the beginning of this recession, half of all unemployed workers were back on the job in a little over seven weeks. Today, it takes more than 17 weeks before half of all newly unemployed workers find a job. It is unsurprising that many of these new jobs pay less than previous jobs, but it is far too early to tell if that will be a persistent result of this recession.

This recession has been especially tough on manufacturing and other industries that have tended to employ a far greater proportion of men. Health care and government, two industries that employ a larger share of women, have suffered much smaller job losses. Again, it is too early to judge the long-term effect of this shift.

By far, the most startling statistics are those of unemployment by educational attainment. For college graduates, the unemployment rate is 4.9 percent, up from 2.6 percent a year ago. The rate steadily rises as educational attainment declines. Those without high school degrees suffer a 15-percent unemployment rate, with 30 percent fewer working in the formal labor market.

The recession is over, but labor markets will be the last to know.•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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