Labor Markets Are Still in Bad Shape

The recent report that the standard (U-3) rate of unemployment fell to 7.7 percent last month seems to have stirred considerable joy in Mudville. But before we spend a lot of time shouting huzzahs, we might well bear in mind a few other data and, of course, recall that not so long ago, a 7.7 percent unemployment rate would have been a cause for lament, rather than celebration.

Because the data on which the various official rates of unemployment rest are so problematic, we often do better to examine not unemployment, but employment, which is subject to fewer difficulties of measurement and interpretation. On this front, the news—especially when put in historical perspective—does not look so good.

As the figure shows, total civilian employment, though it has tended to increase during the past three years, still stands about three million jobs below its level at the end of 2007. So, after five years, the job total still has a long way to go merely to get back to where it was before the bust began.

Meanwhile, however, the population has continued to grow, and therefore the ratio of civilian employment to civilian noninstitutional population aged 16 and older is in much worse shape than total employment.

This ratio plummeted during the contraction, and since the overall economy hit bottom in mid-2009 and began to rebound, albeit slowly, the ratio of employment to population has scarcely budged, remaining stuck at 58-59 percent. To find a time with a comparable ratio, we must go back thirty years to the recession of the early 1980s.

Clearly the labor markets remain in a funk. Although they have improved  during the past three years in some regards, they have failed to improve in other regards. However we measure their condition, it is clear that the situation remains poor by historical standards and, in some ways, by the standards of only a few years ago. The collapse of the employment/population ratio in particular indicates that something may have occurred since 2008 or 2009—perhaps the many additional or increased government subsidies of unemployment and of absence from the labor market—to keep the job market stuck in a distinctly subpar position.


Robert Higgs is Senior Fellow in Political Economy at the Independent Institute, author or editor of over fourteen Independent books, and Editor at Large of Independent’s quarterly journal The Independent Review.
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