Chart of the day, employment-status edition

By Felix Salmon
September 7, 2012

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There are two ways in which the national employment situation influences the election. The first is, simply, the effect of unemployment and underemployment on America’s animal spirits. People who are unemployed, or who are so discouraged that they’re not even looking for work any more, don’t tend to be very happy with their lot, and as a result are more likely to vote against the current president. It may or may not be fair, but the president does get blamed for current economic conditions, and arguments about first derivatives (“it’s bad, but it’s getting better”) or counterfactuals (“it’s bad, but it’s better than it would have been under the other guys”) tend to be pretty unpersuasive to voters.

On this level, today’s employment report is pretty gruesome. According to the establishment survey, employers added just 96,000 jobs this month — less than the amount needed just to keep up with population growth. According to the household survey, the size of the civilian labor force shrank by 368,000 people last month. And the number of people not in the labor force grew by an absolutely massive 581,000.

Right now, the proportion of Americans with a job is lower than it has been in over 30 years. America’s getting older, and you’d expect the number to be falling — but it shouldn’t be falling nearly as fast as this. We’re well below trend, when it comes to the employment-to-population ratio, and that’s really bad for the economy as a whole: it means we have fewer productive workers, and as a result the country is creating much less wealth than it could be creating if more people had jobs. At the margin, of course, anything that depresses the amount of wealth in the country is bad for the incumbent president.

So anybody trying to use the jobs report to handicap the result of the election should probably see a tick down, this morning, in the chances of Obama’s re-election. My feeling is, however, that the size of the tick is likely to be very small. These things depend much more on levels than on deltas, and in any case the current electorate is more polarized than ever, with political convictions which are hard to shake.

Which brings me to the second way that employment affects electoral outcomes. The employment numbers are reported, on the first Friday of every month, and political parties try to use the numbers to their best advantage. On this front, there’s really only one number that matters, and that’s the headline unemployment rate. Financial types care more about the payrolls number, because it’s more accurate and less fuzzy. The unemployment rate, by contrast, is harder to calculate, and is based on the idea that you’re only unemployed if you’re looking for work. But the fact is that from a rhetorical perspective, the unemployment rate is the thing which counts. And so in terms of the optics of today’s report, it’s good for Obama, just because the unemployment rate fell — to 8.1% this month from 8.3% last month and 9.1% a year ago.

That’s still well above the 7% at which the psephologists will tell you that it’s very hard for an incumbent to get reelected. And it still starts with an 8 — although there’s now a small chance that on the day we actually vote, the unemployment rate might start with a 7. But the Republicans can’t say that the unemployment rate is rising, and the Democrats can say that it is falling. Will that change votes? Again, not very many. But insofar as arguments have an effect on elections, this report — bad though it is — has failed to give the Republicans the kind of rhetorical ammunition they might have hoped for.

Underlying both of these dynamics is the way in which the story of discouraged workers — people falling out of the labor force entirely — has become increasingly important, to the point at which it makes the headline unemployment rate much less useful as an economic indicator. Once upon a time, if you didn’t have a job, you fell into one of two categories: either you didn’t want to work, or else you were looking for work. Nowadays, however, there’s a huge third category of discouraged workers who would love a job but don’t even see the point of looking any more.

The Bureau of Labor Statistics has an interesting-if-obscure data series called “labor force status flows”. Most of the people interviewed in the survey measuring the unemployment rate, it turns out, were also interviewed the previous month. So it’s possible to look at the number of people, on a month-to-month basis, who were unemployed last month and who were no longer in the labor force this month. Historically, that number has been somewhere between 1.5 million and 2 million per month, on a seasonally-adjusted basis. But when the recession hit, it spiked to more than 2.5 million, and even more than 3 million at the peak. And it’s still extremely high.

It’s natural for lots of unemployed people to move out of the labor force each month: the Boomers are retiring, after all. But a glance at this chart is all it takes to see that we’re well outside normal territory, and that we’re still seeing millions of people leave the labor force not because they want to but because they feel that there’s simply no point in looking for work any more. I don’t know when or whether this line will come back down to its historical levels. But so long as it’s as elevated as this, the Federal Reserve has its work cut out. Because it means that even if the unemployment rate comes down substantially, we still won’t have really reached full employment — not unless the size of the labor force increases substantially at the same time.

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Comments
11 comments so far

Some very large percentage of the people who are “discouraged workers’ are discouraged because their wage demands for the skills the provide are way way way too high. People from legacy positions laid off with no real chance to get a similar position in the modern economy.

So rather than take their lumps and work for 1/2 as much they sit it. It is as much their own problem as it is “the economy’s”.

I don’t know any people, even including some extremely lazy and listless relatives/friends who couldn’t find a job when they really looked for one even in the heart of the recession.

Posted by QCIC | Report as abusive

Some very large percentage of the people who are “discouraged workers’ are discouraged because their wage demands for the skills the provide are way way way too high. People from legacy positions laid off with no real chance to get a similar position in the modern economy.

So rather than take their lumps and work for 1/2 as much they sit it. It is as much their own problem as it is “the economy’s”.

I don’t know any people, even including some extremely lazy and listless relatives/friends who couldn’t find a job when they really looked for one even in the heart of the recession.

Posted by QCIC | Report as abusive

i was gonna vote for obama, but as soon as i saw this report i decided to vote for romney…

Posted by rjs0 | Report as abusive

Economists have have very poor measure of all of these important things like employment and inflation. Alex Gheg has created a new framework that answers questions that were too big for standard economics. Quantity, quality, variety and convenience in one equation. A scale for human thought.See it and judge. http://www.youtube.com/watch?v=u6tFLGpcO pE

Posted by deebran | Report as abusive

Wonder if the folks running the SSI and SSDI programs have managed to unclog the system. Backlogs for disability benefits were in the two year range a while back. A central order instructing the bureaucrats to simply approve more applications could give us the kind of spike we saw last month.

It could allow a lot more malingerers to collect that juicy $1100-a-month check but . . . small price to pay to keep Romney out, right?

Posted by Eericsonjr | Report as abusive

So it comes down to whether you think slashing taxes and cutting govt to the bone will create jobs in this election. I think the evidence is in: Obama and state govts have slashed govt jobs and taxes have gone down, and the economy gets weaker. If those jobs hadn’t vanished the economy would be on much sounder footing, since we’re talking over 1m, with all the tax receipts they’d create and shoring up just about every other market (retail, housing, personal debt, etc). That’s the question, and one bad jobs report shouldn’t shake that up – though one must admit the participation rate is atrocious and most likely to cause ‘armed trouble’ if it persists.

Posted by CDN_Rebel | Report as abusive

“Right now, the proportion of Americans with a job is lower than it has been in over 30 years. America’s getting older, and you’d expect the number to be falling — but it shouldn’t be falling nearly as fast as this.”

Serious question: How fast should it be falling? In a “normal” economy, how much would baby boomers’ retirements’ be shrinking the labor force right about now?

Posted by BruceARoss | Report as abusive

“Nowadays, however, there’s a huge third category of discouraged workers who would love a job but don’t even see the point of looking any more.”

But there are jobs, they just don’t happen to be high paying or prestigious and are typically hard labor or dirty or something. Many believe these jobs are beneath them. So what your statement should say is: “Nowadays, however, there is a third category of people who won’t do anything but easy work that pays well.”

I am not saying that these are fun jobs, but this article implies that there are no jobs, and that is just not true. The truth is that most americans cannot do hard work anymore. I look at the softness of my fellow americans and I can see that is true. They have lived soft sheltered lives and never challenge themselves to improve or strengthen themselves. Which means if things change as they typically do, they are not adaptable at all.

This is what they are taught, to comply and don’t work to become smart or strong or independent. Follow and comply. It’s an intelligence test. Who is smarter the independent person or the compliant person. The church and state would tell you it’s the compliant person.

Posted by brotherkenny4 | Report as abusive

“Nowadays, however, there’s a huge third category of discouraged workers who would love a job but don’t even see the point of looking any more.”

But there are jobs, they just don’t happen to be high paying or prestigious and are typically hard labor or dirty or something. Many believe these jobs are beneath them. So what your statement should say is: “Nowadays, however, there is a third category of people who won’t do anything but easy work that pays well.”

I am not saying that these are fun jobs, but this article implies that there are no jobs, and that is just not true. The truth is that most americans cannot do hard work anymore. I look at the softness of my fellow americans and I can see that is true. They have lived soft sheltered lives and never challenge themselves to improve or strengthen themselves. Which means if things change as they typically do, they are not adaptable at all.

This is what they are taught, to comply and don’t work to become smart or strong or independent. Follow and comply. It’s an intelligence test. Who is smarter the independent person or the compliant person. The church and state would tell you it’s the compliant person.

Posted by brotherkenny4 | Report as abusive

“Nowadays, however, there’s a huge third category of discouraged workers who would love a job but don’t even see the point of looking any more.”

But there are jobs, they just don’t happen to be high paying or prestigious and are typically hard labor or dirty or something. Many believe these jobs are beneath them. So what your statement should say is: “Nowadays, however, there is a third category of people who won’t do anything but easy work that pays well.”

I am not saying that these are fun jobs, but this article implies that there are no jobs, and that is just not true. The truth is that most americans cannot do hard work anymore. I look at the softness of my fellow americans and I can see that is true. They have lived soft sheltered lives and never challenge themselves to improve or strengthen themselves. Which means if things change as they typically do, they are not adaptable at all.

This is what they are taught, to comply and don’t work to become smart or strong or independent. Follow and comply. It’s an intelligence test. Who is smarter the independent person or the compliant person. The church and state would tell you it’s the compliant person.

Posted by brotherkenny4 | Report as abusive

Who eill the unempoled vote for ?
A promise of jobs ?
A promise of handouts ?
Working is work maybe a handout is easier

Posted by whyknot | Report as abusive
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