Sunday, July 8, 2012

The Severe State Of Our Dismal U.S. Private Sector Employment Challenges

The official U.S. unemployment rate is 8.2% and the broader U-6 rate (includes part timers, discouraged and so forth) stands at a much higher 14.9%.

Now let's add to the above numbers those people who used to be part of the "normal" labor force but for whatever reason have exited the work force. Unemployment Line Longer Than It Looks provides some of the missing pieces to this employment puzzle:

"The headline unemployment rate (officially 8.2%) has been flattered by the number of people no longer counted in the denominator used to calculate it. For example, a comparison of jobs data between the start and end of 2011 shows the ranks of the unemployed fell by 822,000 while the number of people not in the labor force grew by a larger 1.24 million. The unemployment rate fell by 0.6 percentage points over that time to 8.5%.

In fact, the participation rate—the share of the working-age population either working or looking for work—has fallen by 2.3 percentage points over the four years through May to 63.8%, a three-decade low. Nearly 88 million people—about seven times the ranks of the officially unemployed—aren't part of the headline rate's calculation.

Thank the vagaries of government statistics and simple demographics for that. For example, the male rate of participation, which peaked near 88% over 60 years ago, has declined sharply with rising life expectancy. The female rate moved in the opposite direction as two-career families proliferated, but also has dropped recently.

Even so, the extremely long duration of joblessness that has seen people fall off the rolls has had a bigger impact than aging since 2008. The civilian employment ratio, which simply divides employed people by total population, has dropped from 63% to 58.6% in just five years.

That is a significant drop in the share of people whose paychecks, not to mention taxes, support the economy. Payroll growth has averaged just 148,000 in the past year—barely the minimum needed to absorb new entrants to the labor force."

My Take

Millions of people are no longer counted in the calculation of the unemployment rate. Simply put, the smaller the total number of people reported as unemployed, the lower the reported unemployment rate. But while the rate may be lower, that doesn't mean the employment situation isn't dire.

One significant reason for the drop in work force participants is that we're living longer and retiring earlier --- a double whammy of the negative kind when it comes to labor force participation rates.

At the other end, many of the young job seekers are entering the work force at an older age than previously. And still more would-be-workers have dropped out along the way for other reasons, including becoming discouraged as a result of a loss of American jobs to global competitors.

The unemployed or underemployed or non-working numbers are by no means precise, but taken as a whole, they do present a very disturbing outlook for the U.S. economy. We simply must find a way to compete and thereby resume our historical normal economic and jobs growth trajectory.

A common sense realistic U.S. underemployment rate is likely as high or higher than 20%, all things considered. But whatever the real number is, the state of U.S. unemployment represents a really big problem in need of a creative breakthrough solution. That's for sure.

We simply don't have enough people working in relation to the total number of American citizens. Add in the government work force growth over the years in relation to the total employed, and it makes the problem even bigger.

Where to begin?

Well, an all out effort toward achieving energy independence would be a great place to start. Secondly, we could work hard to figure out how to enable U.S. manufacturers to not be materially disadvantaged with respect to global labor costs when selling into our own domestic marketplace.

Our consumer market is huge, and consumer spending accounts for approximately 70% of our total economic activity.

Products made here in the U.S. enjoy a big distribution cost advantage in contrast to imports. In addition, lower domestically produced energy costs in manufacturing and the resultant lower transportation and related distribution expenses, when coupled with intensified and for real productivity enhancements, would go a very long way, if not all the way, to offset our dollar cost disadvantage in global compensation expenses. Taxes could and should play a significant role here as well.

Summing Up

Our global competitiveness problem definitely can be solved, and rather quickly, if we'd only focus as a nation of We the People on doing so.

Over the next several years, we must find a way to get millions more Americans working in the private sector, and at the same time we need to have a much higher rate of productivity in the public sector as well.

That's the only way out of our debt debacle --- private sector led economic growth leading to jobs, consumer spending and higher tax receipts --- leading to getting our financial mess first under control and then later cleaned up --- and all of this due to a resumption of the U.S. private sector's historical growth trajectory --- enabling millions more Americans to be gainfully employed in good jobs.

To steal a phrase from President Obama, the admittedly admirable goal of "saving the middle class" can't happen any other way, at least not that I can see.

Thanks. Bob.

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