Why the Decreasing Unemployment Rate is Deceptive, and Why It Matters to Us

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It seems like every time the unemployment rate goes down, we give ourselves a pat on the back. After all, low unemployment means our economy is getting healthier and back to normal, right?

If only it were that simple. However, all the unemployment rate tells us is the percentage of Americans who are filing unemployment, i.e., actively looking for a job. It doesn’t consider those who have given up looking for a job and left the workforce altogether. These people don’t have jobs and aren’t looking for jobs, but they still have to get money from somewhere, be it savings, family, or government programs. And that drains rather than contributes to the overall economy.

The figure that measures who is in the workforce, meaning they have a job or are looking for one, is called the Labor Force Participation Rate (LFPR). The lower the LFPR is, the fewer Americans are working or intending to work. Our economy requires a relatively high LFPR to sustain it and, in many cases, provide for those who are not in the workforce.

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This summer, despite a declining unemployment rate, the LFPR is not so pretty. In fact, since 2007, it has dropped from 66.4% to 63.4%. Nearly 90 million Americans are now out of the labor force. According to Express Employment Professionals CEO Bob Funk, this is a notable shift that can be explained by three main groups of people:

  • Baby Boomers who are retiring or leaving the workforce early
  • Millennials who are growing increasingly frustrated with job prospects
  • Others who live off of government welfare programs

The New York Times reported that the shift could, more specifically, be due to “the rise in the number of workers on disability.” Today, a record 8.7 million Americans receive disability benefits – that more than the population of New York City. However, the most disturbing aspect, as well as the most volatile variable, of this is the unprecedented number of young adults who are giving up on work and signing up for government assistance.

Surprisingly, this news is not due to the lack of jobs; rather, both Baby Boomers and Millennials are experiencing a skills gap. That is, the skills that employers demand do not match the skills that today’s unemployed possess. For example, in their job searches, many college graduates are encountering entry-level jobs that require only a high school diploma. A large number of Baby Boomers cannot find jobs in their respective fields, and employers consider them too close to retirement to invest in much training and education.

The cause, at its very core, is education. We teach kids that it’s smart to go into thousands of dollars of debt to train for jobs that don’t exist. Among many other things, we need to do a better job of showing children nontraditional options such as vocational and technical training.

As Funk warned, the plummeting Labor Force Participation Rate is not sustainable. We have to make some changes before we end up with more Americans on government assistance than not.

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