Expanding the Unemployment Rate

Friday’s unemployment rate dropped to a four-year low of 7.6%.  While at first glance this looks like a step in the right direction for the economy, the unemployment rate does not take into account that only 88,000 jobs were created during the month of March, compared to February’s 268,000.  

What’s more, unemployment was driven down primarily by nearly half a million people leaving the workforce.  Since unemployment only tracks the employment status of people actively searching for work, it does not give a completely accurate estimate of how many people are without jobs.  

The Wall Street Journal’s table below shows a peak in labor-force participation rate from January-April 2000 with 67.3%.  In March, that percentage dropped to 63.3%, the lowest since May 1979.

One of the groups hit hardest is the under-25 population.  Over 236,000 young people left the labor force last month.  When the recession began in December 2007, 59.2% of the u-25 population was in the workforce.  That number has since dropped to 54.5%, which means that, if the u-25 participation rate remained unchanged, there would be 1.8 million more young people in the workforce.  Additionally, if these 1.8 million young people were to be counted in the workforce, the unemployment rate would rise to 22.9%.  

The US Labor Department’s table below shows the unemployment rate for 16-24 year olds in blue.  The green line represents what the actual unemployment rate for that age group would be if so many hadn’t dropped out of the workforce.

Granted, many people in this age group are still pursuing undergraduate or postgraduate degrees.  But many are graduating and facing a job market that demands work experience.  Many young people are forced to take low-skilled jobs if they want anything at all.

The restaurant industry has historically picked up some of these young workers.  Between the first quarters of 2012 and 2013, eating and drinking establishments added jobs at a 3.1 percent rate, doubling the 1.6% gain in total non-farm payrolls during the same period. Since March 2010, the sector has added 856,000 jobs, behind only the professional-and business services and health care sectors. 

But even restaurants slowed in March, adding only 13,000 jobs, the smallest gain since May 2012, according to the Bureau of Labor Statistics.  Additionally, according to the March 2013 Restaurant Industry Tracking Survey, only 25% of restaurant operators expect economic conditions to improve in the next sixth months.  It’s tough to be positive when representatives of the third largest job-producing sector are that pessimistic, but, for statistical purposes, for now March represents a dip in an otherwise positive trend in job market growth.

Andy Soergel

Sources:

http://economix.blogs.nytimes.com/2013/04/05/the-employment-rate/#more-162035

http://blogs.wsj.com/economics/2013/04/06/number-of-the-week-youth-unemployment-at-22-9/?KEYWORDS=unemployment+rate

http://online.wsj.com/article/SB10001424127887324600704578404271558802706.html?KEYWORDS=unemployment+rate