Why did unemployment jump?
The unemployment rate jumped from 5.0% to 5.5% in just one month, the largest jump in 22 years. Did everyone suddenly get laid off? No. The problem with numbers like this is that they are incomplete.
The one factor left out of the headline is the number of people who are considered to be in the workforce -- either with a job or actively seeking a job. For the past five months, the number of people with a job has declined, but the unemployment rate barely budged because so many people gave up and weren't considered part of the workforce. Last month, about 400,000 people re-entered the workforce; combined with 49,000 lost jobs, that caused the surge.
The real problem is in the long-term numbers. Note the chart below:
This chart shows the percentage of adult Americans who have a job, from 1948 to the present. Notice that the chart generally rises when the economy expands and falls during a recession (with a slight lag). Notice also that every peak over the last 45 years is higher than the previous peak -- except one.
Yes, the "peak" we hit in late 2006 was far behind the mid-2000 peak, and the number has been dropping ever since.
Now take a look at this chart:
This chart is the percentage of American adults in the labor force, including both people with a job and those actively seeking work. From 1948 until early 1965 the number barely budged overall. Since then, coinciding with the beginning of the "war on poverty," the number generally rose, peaking in the spring of 2000. Since then, it has been sliding. In February, the number hit a 19 1/2 year low, then ticked up a tiny bit in March. In May, the number ticked up again, from 66.0% to 66.2% -- and that caused the surge in the headline unemployment rate.
As you can see, over a half century of progress has been reversed under Bush. The key is finding a way to explain this to the general population.
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Economy | recession | Unemployment
Thoughts on Other Factors
Submitted by Dan Jacoby on 7 June 2008 - 10:04am.
Since the oldest baby boomers are just turning 62 this year, any of them who retired over the past several years retired "early," and should not, therefore, need to be "carried" by the workforce. That's the good news.
The 6% unemployment rate that was "considered good" during the 80s was not, in fact, anything like full employment. The drop in unemployment, to 4%, in the 90s is proof of that. The White House press releases of those days, backed up by right-wing propaganda, got the media to say that 6% was full employment. (In fact, the unemployment rate dropped to 5.0% in 1989.)
More people in the workforce means greater demand, which is matched by the greater supply generated by more workers. In general, that means a higher standard of living. Recently, not only has labor force participation declined, but median income (after adjusting for inflation) has declined as well.
Trying to correlate job availability with generational size is difficult at best, but not impossible. The 12 million jobs created during the Carter administration's four years were considered insufficient, and unemployment went from 7.5% to 5.7% and back up to 7.5%. The 23 million jobs created during the eight years of the Clinton administration, however, were a tremendous success, as the unemployment rate went from 7.3% to 4.2% (up from a low of 4.0%). The difference in unemployment rates despite similar job creation rates could be chalked up to the difference between baby boom and GenX size. But the rise in the labor force participation rate was also far greater during the Carter years than during the Clinton years, due in part to the number of women who entered the job market. The topology required to create a full explanation of all these numbers is complex, at best.
But those factors don't explain the unprecedented decline in labor force participation rates over the past seven years. Nor do they explain why the employment-population ratio has not come anywhere close to its 2000 peak -- another unprecedented decline. It stands to reason that there is another factor, or combination of factors, at work here. I believe those factors can be lumped together into one big group, labeled the "Bush administration economic agenda," and defined by the statement that below a certain point, when tax rates are made less progressive, the economy pays the price.
There is no doubt that there is a point "t" on the Laffer curve (defined as the tax rate that delivers maximum revenue for government), and there is a good chance that sometime after WWII federal income taxes were on the right side of that point. When that is the case, then lower taxes are an unqualified good thing. But I maintain the following: 1) That the Reagan tax cuts left us farther from "t" on the left-hand side of the curve than we may have been on the right-hand side in the 70s; 2) That the tax increases (almost entirely on the wealthy) pushed through during Bush41 and the first year of the Clinton administration not only helped balance our budget, but also allowed targeted tax cuts to stimulate economic growth; 3) That the Bush43 tax cuts were detrimental to the economy in both the short- and long-term; and 4) That the employment charts are evidence of the accuracy of these assertions.
Enough for now; more to come later.
Other Factors
Labor force participation may have been falling due to the retirement of an aging population. That's not good news -- that's more people for the working to carry. In any event it may have plateaued, with women fully intergrated into the labor force.
But let's get back to the title of your post.
The flood of women and the baby boom generation into the labor force led to high unemployment. Back then, a 6.0% unemployment rate was thought of as good.
Those at the back end of the baby boom, like me, found all the jobs taken and all the housing bought. I still end up working for the 60s generation everywhere I go.
With the smaller Gen X reaching working age, there was less competition for entry level jobs, and unemployment fell. We would have had a massive labor shortage -- across all skill levels -- were it not for immigration.
Now Gen Y -- the large group of children of the baby boomers or the "baby boom echo" is flooding into the labor force. And passing on the curse, my kids will be at the back end of it. Since the 60s generation had kids later than the 70s generation, there is a much sharper peak hitting 18/19 this year -- in a recession.
The teens came into the labor force and did not get jobs. Unemployment can go up a long way.
On the job loss side, the number of employed residents of a area (measued by the household survey) has been moving much faster and farther (up and then down) than the number of wage and salary employees. This is because more and more young people (and immigrants) have been hired as self-employed independent contractors or "freelancers" -- without health insurance. Evidently, the non-employees are the first to be "fired."