The Real Employment Situation in America

The most recent employment report released this past Friday showed an increase in non-farm payrolls of only 113k jobs but a continued decline in the overall rate of unemployed to 6.6%.

While the growth in jobs is not what we would like, the overall rate of unemployment is not bad by historical measures, right?

To steal a phrase from the inimitable radio host Paul Harvey, “And now, the rest of the story.”

Thanks to the regular reader who brought my attention to a recent report released by Boston Federal Reserve president Eric Rosengren addressing the structural problems in our labor markets that reflect the real employment situation in America.  This report, Underutilization in Our Labor Markets highlights the following:

While the narrow measure of unemployment has been improving, the broader measures from the Bureau of Labor Statistics show that over 20 million Americans are currently either unemployed, are marginally attached to the labor force (including “discouraged” workers), or are working part time when they would prefer full-time work.

“For these Americans, it is all too painfully apparent that labor markets remain far from their state prior to the recession,” said Rosengren.  “Using the narrow, widely reported unemployment rate alone could suggest a misleadingly optimistic state of affairs.”

The broader measures of unemployment remain unusually high relative to the narrow (U-3) measure of unemployment, said Rosengren.  In fact, the broader the measure, the further the current reading is from its pre-recession level and from its average from 1994-2007.

Rosengren noted that while his talk focused on data points and measures, “we cannot lose sight of matters of human toll and potential, as well.”

The broadest measure is particularly striking.  It includes people who are available to work full time but have had their hours reduced, or can only secure part time work. “Even at this point in the recovery, the measure is still nearly four and a quarter percentage points or 6.5 million people above the pre-recession average,(LD’s highlight) said Rosengren.  “The large number of individuals working part time for economic reasons highlights the need for much more improvement in labor markets.”

That point in bold is the elephant in our nation’s living rooms and kitchens. What are the implications and challenges of this enormous slack in our labor markets? Rosengren asserts:

1. Monetary policy will not effectively address structural problems in labor markets.

2. One potential explanation for persistently low price and wage growth may be that the broader measures of labor markets are signaling a weak labor market.

If monetary policy is not the right approach to address the structurally unemployed then 1. why has the Federal Reserve engaged in the quantitative easing experiment, and 2. what are the other folks in Washington doing to address this enormous drag on our economy and ultimately our nation?

Rosengren concludes that ultimately all the Federal Reserve can do, though, is to keep rates lower for longer:

With too much labor market slack and very low inflation rates, monetary policy should continue to be highly accommodative.

For those who would like to review the 19-page overview and charts connected to Rosengren’s talk I welcome sharing them.

So 6.6 — as in the 6.6% rate of unemployment — is not the proper measure to assess the real employment situation in America. What is the right number? 6.5 is the right number, as in the 6.5 million people who are available to work full time but have had their hours reduced or can only find part time work.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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