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Unemployment: Welcome to the New Normal


We're in for a long five years -- at minimum.

Unemployment is high and rising. But if the recession is over, won't employment start to rise? The quick answer is no. Today we'll look deeper into the Statistical Recovery and find yet more reasons to be concerned about near-term deflation. We'll consider all things unemployment and ponder the need to create at least 15 million jobs in the next five years to return to a full-employment economy -- and the implications for both the US and world economies if we don't. Economics is often about what we can clearly see, and yet its understanding what we can't see that gives us true insight. We start with a collection of visible facts and then begin a thought exercise to find the implications.

What We See

First, the unemployment rate is now officially at 9.7%. We're approaching the official high we last saw at the end of the double-dip1982 recession. In the chart below, notice that unemployment rose throughout 1980 and then began to decline, before rising rapidly as the economy entered the second recession within two years. Also notice the rapid drop in unemployment following that recession, as opposed to the recessions of 1991-92 and 2001-02, which have been characterized as jobless recoveries. Unemployment was as low as 3.8% in 2000 and saw a cycle low of 4.4% in early 2007.

(For the record, there is a treasure trove of data available on the Bureau of Labor Statistics (BLS) website. The Bureau is quite open about what it does and how it does it.)

This headline unemployment number (9.7%) is what we see when we read the paper. What we typically don't see is the real number of unemployed. For instance, if you haven't actively looked for a job in the last four weeks, even if you would like one, you're not counted as unemployed. Instead, you're called a "marginally attached" or "discouraged" worker. Often there are very good reasons for this. You could be sick, dealing with a family emergency, going back to school, or have no transportation.

Right now, about one-third of marginally attached workers actively want jobs but haven't bothered to look because they believe there are none in their area -- at least, not for them. If you add that extra 758,000 to the unemployment data, you get what's called U-4 unemployment, which today is 10.2%. If you count all marginally attached workers, the unemployment number is 11% (U-5 unemployment).

And if you add those who are employed part-time for economic reasons (i.e., they can't get full-time jobs), the unemployment number rises to 16.8%. (That's called U-6 unemployment.)

Now, stay with me for the next two tables taken directly from the BLS website. The first is the total number of people in the US civilian work force. Notice how each year, the number of potential workers rises. In fact, the number of workers has risen by about 15 million over the last ten years. This is from population growth and from immigration. Also notice that the normal rise didn't happen last year. That's because the number of discouraged workers has risen rapidly and, as noted above, they aren't counted. We'll revisit this point later. But for now, there are 154,577,000 people in the available work force.

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