Drop in Unemployment Rate May Reflect More Discouraged Workers Rather than Increased Employment

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In the December 18, 2009 article "Fewer States Add Jobs As Recovery Sputters Along," Associated Press business writer Daniel Wagner reports that recent declines in the unemployment rate may reflect an increase in discouraged workers who have stopped looking for jobs rather than a significant increase in employment.

WASHINGTON -- In a reversal of earlier gains, more states lost jobs than added them in November, signaling that hiring is occurring only sporadically around the country.

Unemployment rates dropped in 36 states and the District of Columbia, but that trend appeared to reflect more people leaving the work force. Unemployed people who stop looking for jobs out of frustration aren't counted in the labor force.

Friday's Labor Department report underscored that employers have yet to ramp up hiring, and many Americans can't find work. The number of people jobless for at least six months rose last month to 5.9 million, according to a separate report released earlier this month. And the average length of unemployment exceeds 28 weeks, the longest on records dating to 1948.

It was the first time since April that more states' unemployment rates fell than rose. But two states, South Carolina and Florida, saw joblessness reach its highest point in 25 years. And economists say most states' unemployment rates will rise as the stimulus programs wind down and seasonal jobs taper off.

"Even though things are getting better, they're not getting better fast enough to keep unemployment from rising in the next six to nine months," said Mark Vitner, senior economist at Wells Fargo & Co.

Vitner said he expects unemployment nationally and in most states to continue inching up before cresting in about nine months. He predicts it will be six more months before there are any consistent job gains.

In all, 19 states added jobs in November, down from 28 in October. Thirty-one states and the District of Columbia suffered a net loss of jobs.

Labor said there were statistically important employment changes in four states. All four showed job losses. They are Michigan, Nevada, Mississippi and Hawaii.

The states that reported the largest jobs gains were Texas, Ohio, Georgia, Arizona and Iowa. Those shifts were not considered statistically important as a proportion of those states' large work forces.

Signs emerged in some states of people rejoining the work force to seek jobs as the economy slowly improves. Of the eight states where unemployment rose, five added jobs. All but one saw their work forces grow, indicating more people were looking for work.

The states that saw their labor forces grow faster than they could add jobs were Ohio, South Carolina, Georgia and Idaho.

"Now that the economy is stabilizing, we're seeing more people come back into the work force and looking for jobs," Vitner said. "The net effect of that is to push unemployment up."

The figures for jobs and unemployment don't always match because they come from separate reports. The unemployment rate is calculated from a survey of households. The jobs count reflects a survey of businesses.

Similarly, unemployment rates can drop when people give up looking for jobs. Of the seven states with statistically important drops in unemployment rates, five saw their labor forces shrink. They were Connecticut, Kansas, Kentucky, New York and Pennsylvania.

In Nebraska and Texas, unemployment fell even while people entered the labor force, a sign of relatively robust job markets.

In Texas, hiring was even across many sectors, including finance, professional and business services, education and health, hospitality and government. The only areas to lose jobs were construction; manufacturing; and trade, transportation and utilities.

Nebraska saw job growth in every sector except finance and hospitality, which declined slightly.

Florida was the only state whose unemployment rate rose significantly, to 11.5 percent from 11.3 percent. Vitner said the state's construction industry experienced a short-term boost over the summer due to a tax credit for first-time homebuyers that was set to expire in November. Congress extended the program, but people who had feared it would expire closed on their houses before November. Many related jobs have since dried up.

Since November 2008, all 50 states have seen a net loss of jobs and a rise in their unemployment rates.

November's jobs picture is bleaker than October's, in part because last month's gains were driven by a rise in temporary employment, economists said. Temporary hiring often is a sign that employers are gearing up to add full-time jobs.

But economists cautioned that October's gains might not be sustainable. They were driven by temporary demand in the auto sector to replace inventories depleted by the Cash for Clunkers rebate program.

November's falling unemployment rates are due in part to the Thanksgiving holiday. Because Thanksgiving came early this year, Vitner said, more holiday hiring than usual took place in November.

Still, the U.S. unemployment rate dropped to 10 percent November from 10.2 percent in October. It was the first unemployment decline since July. Economists called it a hopeful sign that the economy is on the mend, however slowly.

For the jobless, Labor Day is hardly a holiday

In the September 6, 2009 article "For the jobless, Labor Day is hardly a holiday," Associated Press economics writer Jeannine Aversa discusses the psychological challenges of being unemployed. The article highlights that official labor market statistics only count people actively looking for a job as unemployed. When jobseekers become discouraged by the slim prospects of finding a job and stop looking for one, they are no longer considered unemployed and are not included in the unemployment rate. Labor market data may underestimate the true level of unemployment in the economy:

WASHINGTON – Every day it's a battle. The nearly 15 million unemployed Americans won't enjoy Labor Day as a relaxing respite from work. Instead, they'll once again need to prepare to get up, hit the pavement and keep hunting for a job.

As the jobless rate nears 10 percent, even those fortunate enough to be employed fret about keeping their jobs. But for those without them, it's a daily struggle with emotional and economic distress.

"It's hard to maintain your focus that you're a valuable member of society when you go three months and nobody really wants to employ you," says David O'Bryan, 59, of Barre, Vt.

To cope with the stress, O'Bryan jots down his thoughts in a journal he carries around. He's seeking a new career in the education field. In one recent entry, he wrote:

"I'm finding the process of trying to get into schools both tedious and frustrating. I wish I could have some concrete feedback on why I'm not being hired. Overweight? No para-educator certificate in effect? No confidence in my ability to perform the job?"

The economy is showing signs of being on the mend. Yet that's hardly reassuring to the unemployed this Labor Day weekend. The job market is in lousy shape and will stay that way for a while.

The nation's jobless rate jumped to a 26-year high of 9.7 percent in August from 9.4 percent in July. It's expected to top 10 percent this year and keep climbing into part of next year before falling back. The post-World War II high was 10.8 percent at the end of 1982.

And it could take four years or more for the unemployment rate to fall back down to a normal level of about 5 percent.

Gregory Przybylski, 46, of suburban Milwaukee has grown increasingly anxious since losing his job as a machine operator in March 2008.

"It's getting scary," said Przybylski, a bachelor who has spent the past several months studying for a high school equivalency degree. "I'm just hoping to be working by Christmas."

Przybylski said he's using his time to study and improve himself so he'll be ready once the economy turns around. But he fears being thrust into a new career after spending so many years as a machinist.

"I've been doing this since 1980 — that's what I know," he said, slowly shaking his head.

"It's stressful whether you have a job or not," says Patricia Drentea, associate professor of sociology at the University of Alabama at Birmingham. "If you are out of a job, it can be demoralizing to know that the tide has not yet turned. For those still in jobs, there is the constant worry that there is going to be more layoffs."

The worst recession since World War II has claimed a net total of 6.9 million jobs — and more losses are expected, casting a pall over this year's Labor Day.

The strains of rising unemployment are making people — those with jobs and those without — more frugal. And they're likely to remain cautious spenders in coming months, crimping the budding economic recovery.

Ethan Fierro of Chicago has managed to survive a round of layoffs at his accounting firm. But he's not taking his job for granted and is clamping down on the household budget, and cutting out the little extras.

"Now, movie nights have to be Netflix nights," says Fierro, 33, who has a wife and a 1-year-old son.

Chrysantheum Dickens, 43, of Tampa, a church pastor who also works in sales at an information technology company, shops at a Salvation Army store for school clothes for her sons.

"It's a different age now, and you never know what's going to happen," she says.

Jobseeker Ileen Goldberg of Tampa stopped scheduling doctor's appointments and sold her car to save money and help make ends meet.

"It's horrible out there," says Goldberg, 48, who lost her job as an administrative assistant in June. "I have no prospects, so every day it's a mental battle when you get up."

Laid off eight months ago from her secretarial job at a health clinic, Mary Pat Didier, 60, is preparing her five grandchildren for the possibility she might have to move away from her home in Rockford, Ill., in hopes of finding employment.

Didier has begun applying for jobs in Chicago and in Milwaukee. So far, no luck. Her unemployment benefits are set to expire in January, but she hopes to qualify for extended aid. She's burned through her retirement savings.

"There's no place to go from here," Didier said. "I'm too young for Medicare, but I ended up with no health (insurance). I get frustrated, but I can't give up, so I try to not to dwell in it," she adds. "I finally know what it's like to live in the moment."

An Associated Press-GfK poll last month found that 43 percent of Americans were worried "some" or "a lot" about losing their job, even though the pace of layoffs has slowed. And statistically, that wasn't much changed from the results in February, when job losses were much heavier.

A growing number of people have grown so frustrated that they've stopped looking for work. The number of such "discouraged workers" totaled 758,000 in August — nearly twice as many as a year ago. Because they've abandoned their job searches, they aren't included in the government's count of the 14.9 million people who are unemployed.

If discouraged workers and people who have settled for part-time work are included, the unemployment rate would have been 16.8 percent in August, the highest on records dating to 1994.

"Right now, there are six people unemployed for each job opening," says economist Lawrence Mishel of the Economic Policy Institute. "If you are not successful in finding work, you are in a cruel game of musical chairs with six people circling around one chair."

Earlier this week, Federal Reserve officials said they expected the pace of the recovery to pick up in 2010, but the likely strength of the upturn is uncertain because of concerns about how much consumers will borrow and spend.

A "poor" job market, evaporated wealth from home and stock values, hard-to-get credit and wages that aren't likely to rise much anytime soon mean Americans face "considerable headwinds," Fed officials said. How consumers behave is crucial to the recovery because their spending accounts for roughly 70 percent of economic activity.

Labor Secretary Hilda Solis' advice to the unemployed: "I would tell those workers and families not to lose sight of hope." She urges them to seek the skills, education and training needed for new jobs. But she acknowledges these are tough times.

"Americans are facing monumental challenges," she says. "I know that every job lost, every hour cut from the workweek, means another family having to make difficult decisions."

White House still warns of 10 percent jobless rate

In the August 7, 2009 article "White House still warns of 10 percent jobless rate," Associated Press writer Ben Feller reports that although the unemployment rate dropped slightly in July 2009, it might rise to over 10 percent later this year. A possible explanation is that when discouraged workers stop seeking employment (because they doubt they will be hired), they are no longer counted as unemployed. (Instead they are considered "not in the labor force.) According to Feller:

WASHINGTON – President Barack Obama on Friday welcomed a dip in unemployment as evidence "the worst may be behind us" with the recession well into its second year. Earlier, however, the White House said that the president still expects unemployment to hit 10 percent sometime later this year.

White House press secretary Robert Gibbs said the two positions don't contradict each other.

"I would describe the report that came out today as the least bad report that we've had in a year," Gibbs said. "But we still have a long way to go."

The new Labor Department numbers show that employers cut 247,000 jobs in July, another job loss but also the smallest reduction of any month this year. The unemployment rate dropped marginally from 9.5 percent to 9.4 percent, although one of the reasons for that change is that hundreds of thousands of people left the labor force.

"Today, we're pointed in the right direction," Obama said in brief remarks in the Rose Garden hours after the report was released. "While we've rescued our economy from catastrophe, we've also begun to build a new foundation for growth."
Even so, Obama said: "We have a lot further to go. As far as I'm concerned, we will not have a true recovery until we stop losing jobs." He also said he won't rest until "every American that is looking for a job can find one."

The president used the new jobs figures not only to pitch the benefits of the already passed stimulus package but also to press for policy changes on health care, education and energy that he seeks.

"We can't afford to return an economy based on inflated returns and maxed-out credit cards," he added. "It won't be easy. ... We have a steep mountain to climb and we started in a very deep valley." But he added that he was confident the country could pull itself out of the slump.

The initial White House reaction to the new employment numbers was mostly guarded.

"None of us loses sight of the fact that last month a quarter million people lost their jobs," Gibbs said. "The long-term unemployment rate is increasing. People are going to begin exhausting their even extended unemployment benefits soon."

"I think it's going to be quite some time before we start seeing genuine, sustained, positive job growth," the spokesman said.
Obama has urged Americans to be patient and give time for his $787 billion stimulus package of tax cuts and increased government spending to take hold. Gibbs contended there could be no doubt the stimulus plan has contributed to the slowing rate of job losses.

Limitations of Unemployment Data

Limitations of Unemployment Data

Unemployment data, like all data, have limitations. The statistics reported by the Bureau of Labor Statistics are not perfect measures of labor market conditions in the United States. Two criticisms of the methodology used to measure unemployment suggest the reported data underestimate the true level of unemployment. Another criticism suggests the data may overestimate unemployment, however.

Some people counted as employed are underemployed. Underemployment refers to people with jobs who are not working as much as they want or need to work. Consider a single parent trying to support three children. The only job she is able to find is a part-time job, such as working 25 hours per week at McDonald's. Will this part-time job provide enough income to support her family? People with part-time jobs may be counted as employed even though they may not be working as much as they want or need to work. Because unemployment statistics may not represent the fact that some people are not working as much as they want or need to work, some critics argue the labor market data reported by the government may underestimate the actual amount of unemployment in the economy.

Discouraged workers are individuals who would like to work but have given up looking for a job. Some people may become discouraged by their inability to find a job and stop looking for work. Because they are no longer looking for a job, discouraged workers are included with those who are not in the labor force. If they had not become so discouraged and continued to look for a job, they would be classified as unemployed. Consequently, one could argue that workers becoming discouraged may reduce the reported unemployment rate and underestimate the true amount of unemployment in the economy.
Another criticism of the labor market data suggests the reported numbers may overestimate unemployment, however. Some respondents may give false or misleading answers to the telephone survey. Suppose a person does not have a job and collects unemployment compensation from the government. If someone from the government calls to ask "Do you have a job?" and "If you do not have a job, are you looking for one?" some people might say they are looking for work, which is a requirement for receiving benefits, even if they are not. If adults without jobs are not looking for work, technically they should not be classified as unemployed. Instead, they should be classified as not in the labor force. Consequently, some critics argue that the tendency for some people to misrepresent themselves in phone surveys causes the unemployment data reported by the government to overestimate the actual amount of unemployment in the economy.

When all three criticisms of labor market data are considered, the effects tend to offset each other. Even though unemployment data have these limitations, most economists believe they are reasonable measures of the true level of unemployment in the economy.