About that Lower Unemployment Rate, and Public Sector Jobs

September 6th, 2013 at 4:56 pm

It’s now pretty well understood that of the two ways you can reduce unemployment, we got the bad one today.  That is, the jobless rate can fall because more jobseekers land jobs—good–or because they give up looking—bad.

Today’s tick down was of the latter type.  The labor force participation fell two-tenths of a point to a level we haven’t seen in decades.  Some of that decline is demographic—our workforce is comprised of a growing share of workers on the cusp of retirement.  But most of it—I’d say about two-thirds based on the analysis I’ve seen—is due to weak labor demand.

Which led me to the interesting labor force flows data, of which one component is: the number of workers who leave unemployment not for work, but for NILF—not in labor force.  That’s the person who gives up looking.  (I discuss the flows data here.)

It’s obviously a counter-cyclical variable (the economy tanks—this share goes up), but boy did it take off in this downturn compared to the prior two for which we have data.  The figure plots the number of persons who left unemployment for NILF as a share of the adult population, using a three-month average to smooth it out a bit.


Source: BLS, 3-month moving avg.

As you see, it’s coming back down—fewer of the unemployed are dropping out (to give you a sense of the underlying numbers, we’re talking about around 2.6 million persons last month).  But it was so elevated in the Great Recession—and, of course job growth hasn’t been that strong, so the pull to stay in the search weaker than it shouldbe—that there’s still an historically large share of the unemployed leaving the job market each month.

Though I don’t know who these unemp==>NILF peeps are, I figure a bunch of them must be the long-term unemployed, of which we also have a much larger share than in past recessions/weak recoveries.  In other words, I’d hypothesize that simply having a larger share of long-term unemployed means you’ll see more people making this unfortunate transition.

One other point about the jobs report worth noting.  Though there was a spike in local public education jobs last month—up 20,000—the loss of public sector jobs has been  unique drag on this recovery.  The chart below, from the President’s CEA, shows how markedly worse this trend has been.  Had we not lost all those state and local jobs, the jobless rate would be below 7% according to the CEA.  Had the trend in these jobs—teachers, cops, firefighters, maintenance personnel—been like that of the last two recoveries, as shown in the figure, the jobless rate would be down a point.


Source: CEA

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7 comments in reply to "About that Lower Unemployment Rate, and Public Sector Jobs"

  1. Perplexed says:

    “We The People” is the other name for the “Beast” that is being “starved.” Starvation is a slow, gradual, miserable process, albeit one that those in power seem to agree, must be done! It appears likely that your suspicions of “seasonal adjustment” problems could be right on the mark.

  2. Anonne says:

    And if you look at Texas in particular, you’d be surprised to know that the state that yammers on about small government grew its government during this recession. Partly thanks to stimulus money, I believe.

  3. readerOfTeaLeaves says:

    One problem with the unemployment stats is that they are not provided in the context of technological changes. For instance, it would be worthwhile to know how many of the long term unemployed used to work in positions that are now automated. Or, to put it differently: how much of this long term unemployment is structural? Probably lots.

    The recent employment stats allude to deeper, systemic economic problems that are seldom well discussed in public. Many of the problems originate in lousy politics, but a lot of them appear to be attributable to outmoded economic thinking. (IMVHO, the lousy politics and outmoded economic thinking are tragic Siamese twins; add in untraceable campaign contributions and you have a truly noxious outcome.)

    These employment stats suggest that labor is increasingly irrelevant.

    If true, that presents a public policy issue of paramount importance. And the old economic models are not helping to figure any of this out.

    ‘Race Against the Machine’ certainly opens the conversation wider with respect to the intersection of employment and technology shifts. But as that book points out: the economics of digital technologies are mostly about abundance — whereas, existing institutional business and tax rules are mostly about ‘competition’* and scarcity (supply/demand curves).

    All the supply-demand stuff that I learned ‘back in the day’ is downright dangerous for thinking about, and trying to understand, the business opportunities in a digitized economy – which highly values collaboration. Yet, to hear the public conversation, you’d think that wealth is always and everywhere created via ‘competition’. I can only assume that too few take the time to wonder how ‘competition’ made so many talented humans economically irrelevant…because a system based on that logic is not sustainable.

    If public policy discussions about employment and other issues are based on outdated economic models, then we should probably anticipate more long term unemployment, higher corporate profits, and continued economic turmoil.

    I would really love to see these employment stats presented with more social, legal**, and technological context. Because that’s the only way that I can see getting a more complete view of what’s actually happening.

    Real people tend to like work and find it meaningful.
    But outdated economic models that emphasize ‘profit seeking maximizers’, supply/demand curves, quarterly profitability, relentless competition, and offshoring simply can’t accommodate that simple reality. And it appears that those outdated models lead to high rates of unemployment, combined with ignorance about the value of public goods.

    * I think of this economic line of thought as “Romneyeske” or “Hubbardish”; well intentioned, but beyond its pull date given our current economic, demographic, and technological developments.

  4. HelpThe99ers says:

    Two questions, please:

    1. Looking at the chart of job openings since 2001, it looks at though that number is approaching its average: about 4 million per month. It’s the number of jobs lost that has spiked in this recession. Is it possible that employers have learned to live with smaller workforces as a way to keep up their profits, and that the long-term unemployed face the real possibility of staying that way?

    2. Is there a way to track the number of jobs lost by sector (teachers, firefighters, police, etc.) in that state and local government chart?

    • Jared Bernstein says:

      1) That is certainly a valid concern, though stronger demand/faster growth would require more hires.

      2) No–the lines are of the public sector industry–you’re asking about occupations–the BLS does track such info from different surveys.

  5. Neildsmith says:

    I work for a company that has doubled in size in the last 2 years to 500 employees. At the same time, there has been a lot of turnover in the last 12 months. All these people left for better opportunities and have been replaced… and then some. But there are at this company a certain number of workers who are clearly just not interested in actually working. We all know who they are and talk about it quite a bit. Some are nearing retirement age and just putting in their time. Others are in over their heads or are simply poorly managed. It’s been the same at every place I’ve worked for 20 years. I think some companies have figured this out and found ways to cut out some of those less productive workers. And because they really weren’t doing that much to begin with, they haven’t been missed or replaced.

    It has surely been true for a very long time that it is easier to find a job when you have one already and I cannot imagine that will ever change. If a college educated professional gets laid off or fired for cause, you have a very short time to find another job before employers stop even looking at you. And it definitely doesn’t help if you are over 50.

    If someone can construct a government program or policy designed to address that problem, they should win the Nobel prize for economics. Sadly, this problem seems incurable.