Skip to main content

Jobless rate is worse than you think

By Heidi Shierholz, Special to CNN
September 6, 2013 -- Updated 1311 GMT (2111 HKT)
People seeking jobs wait in line at an employment fair in New York in May 2012.
People seeking jobs wait in line at an employment fair in New York in May 2012.
STORY HIGHLIGHTS
  • Heidi Shierholz: Jobless rate improvement has been caused by all the wrong reasons
  • She says rate down because workers have dropped out or are not entering labor force
  • Shierholz: Demand for goods, services hasn't gone up enough for businesses to hire more
  • She says restore state, local public services: Priority has to be jobs, not deficit reduction

Editor's note: Heidi Shierholz is a labor market economist with the Economic Policy Institute in Washington. She is a co-author of "The State of Working America."

(CNN) -- More than four years since the Great Recession ended in June 2009, the unemployment rate is 7.3%, a big improvement from the high of 10% in the fall of 2009. Unfortunately, the rate is hugely misleading: Most of that improvement was for all the wrong reasons.

Remember, jobless workers are not counted as being part of the labor force unless they are actively looking for work, and the decline in the unemployment rate since its peak has mostly been the result of workers dropping out of -- or not entering -- the labor force.

According to Congressional Budget Office estimates, if the labor market were healthy, the labor force would number about 159.2 million. But the actual labor force numbers just 155.8 million. That means about 3.4 million "missing workers" are out there -- jobless people who would be in the labor force if job opportunities were strong.

Given the weak labor market, they're not actively looking for work and so aren't counted. If those missing workers were actively looking, the unemployment rate would be 9.4%.

Heidi Shierholz
Heidi Shierholz

We need 8.3 million jobs to get back to the prerecession unemployment rate, considering the 2 million jobs we are still down from the start of the Great Recession in December 2007 plus the 6.3 million jobs we should have added since just to keep up with normal growth in the potential labor force.

Over the past three months, we've added 175,000 jobs a month. At this rate, it will take six years -- until the middle of 2019 -- to return to a healthy labor market.

Federal contract workers deserve justice on pay

Our sustained high unemployment and weak job growth is also hurting wages: When workers have limited outside job opportunities, employers simply don't have to offer much in raises to get and keep the workers they need. The typical worker saw wages drop 2.6% between 2007 and 2012, and with unemployment expected to remain high, wages for most workers aren't expected to grow much -- if at all -- in the next few years.

How the jobless rate can hurt everyone

The reason we are having such a sluggish jobs recovery is not complicated -- there is simply not enough work to be done. Economists refer to this as weak aggregate demand. Another way to say this is that demand for goods and services hasn't picked up enough for businesses to ramp up hiring.

The notion that today's high unemployment is caused by workers not having the right skills for the jobs that are available has been soundly debunked by economists. To solve the economy's key problem, weak aggregate demand, Washington needs to focus on policies that will stimulate demand.

In the current economy, this means fiscal expansion, such as re-establishing the state and local public services that were cut in the Great Recession and its aftermath, and large-scale infrastructure investments. The priority has to be jobs, not deficit reduction.

Filling the jobs gap is only the first step, given that weak wage growth for most workers predates the Great Recession. From 2002 to 2012, wages were flat or declined for a vast majority of workers, a lost decade for wages that comes on the heels of a generation of inadequate wage growth. For almost the entire period since the 1970s, wage growth for most workers has been weak.

This means that in addition to the fiscal expansion in the short run to spur us to full employment, we need policies that will restore the bargaining power of low- and middle-wage workers.

These policies include everything from aggressively increasing the minimum wage until it is equal to half the average worker's wage to updating labor law to keep up with increased employer aggressiveness in fighting unions so that willing workers can join a union. Also, the president needs to take executive action to ensure that federal dollars are never spent employing people in jobs with poverty-level wages.

Broadly, it means making wages grow for not just the affluent but also low- and middle-income workers a key priority in economic policymaking.

Follow us on Twitter @CNNOpinion.

Join us on Facebook/CNNOpinion.

The opinions expressed in this commentary are solely those of Heidi Shierholz.

ADVERTISEMENT
Part of complete coverage on
December 27, 2014 -- Updated 0127 GMT (0927 HKT)
The ability to manipulate media and technology has increasingly become a critical strategic resource, says Jeff Yang.
December 26, 2014 -- Updated 1617 GMT (0017 HKT)
Today's politicians should follow Ronald Reagan's advice and invest in science, research and development, Fareed Zakaria says.
December 26, 2014 -- Updated 1319 GMT (2119 HKT)
Artificial intelligence does not need to be malevolent to be catastrophically dangerous to humanity, writes Greg Scoblete.
December 26, 2014 -- Updated 1505 GMT (2305 HKT)
Historian Douglas Brinkley says a showing of Sony's film in Austin helped keep the city weird -- and spotlighted the heroes who stood up for free expression
December 26, 2014 -- Updated 1303 GMT (2103 HKT)
Tanya Odom that by calling only on women at his press conference, the President made clear why women and people of color should be more visible in boardrooms and conferences
December 27, 2014 -- Updated 2327 GMT (0727 HKT)
When oil spills happen, researchers are faced with the difficult choice of whether to use chemical dispersants, authors say
December 25, 2014 -- Updated 0633 GMT (1433 HKT)
Danny Cevallos says the legislature didn't have to get involved in regulating how people greet each other
December 23, 2014 -- Updated 2312 GMT (0712 HKT)
Marc Harrold suggests a way to move forward after the deaths of NYPD officers Wenjian Liu and Rafael Ramos.
December 24, 2014 -- Updated 1336 GMT (2136 HKT)
Simon Moya-Smith says Mah-hi-vist Goodblanket, who was killed by law enforcement officers, deserves justice.
December 24, 2014 -- Updated 1914 GMT (0314 HKT)
Val Lauder says that for 1,700 years, people have been debating when, and how, to celebrate Christmas
December 23, 2014 -- Updated 2027 GMT (0427 HKT)
Raphael Sperry says architects should change their ethics code to ban involvement in designing torture chambers
December 24, 2014 -- Updated 0335 GMT (1135 HKT)
Paul Callan says Sony is right to call for blocking the tweeting of private emails stolen by hackers
December 23, 2014 -- Updated 1257 GMT (2057 HKT)
As Christmas arrives, eyes turn naturally toward Bethlehem. But have we got our history of Christmas right? Jay Parini explores.
December 23, 2014 -- Updated 0429 GMT (1229 HKT)
The late Joe Cocker somehow found himself among the rock 'n' roll aristocracy who showed up in Woodstock to help administer a collective blessing upon a generation.
December 23, 2014 -- Updated 2115 GMT (0515 HKT)
History may not judge Obama kindly on Syria or even Iraq. But for a lame duck president, he seems to have quacking left to do, says Aaron Miller.
December 23, 2014 -- Updated 1811 GMT (0211 HKT)
Terrorism and WMD -- it's easy to understand why these consistently make the headlines. But small arms can be devastating too, says Rachel Stohl.
December 22, 2014 -- Updated 1808 GMT (0208 HKT)
Ever since "Bridge-gate" threatened to derail Chris Christie's chances for 2016, Jeb Bush has been hinting he might run. Julian Zelizer looks at why he could win.
December 20, 2014 -- Updated 1853 GMT (0253 HKT)
New York's decision to ban hydraulic fracturing was more about politics than good environmental policy, argues Jeremy Carl.
December 20, 2014 -- Updated 2019 GMT (0419 HKT)
On perhaps this year's most compelling drama, the credits have yet to roll. But we still need to learn some cyber lessons to protect America, suggest John McCain.
December 22, 2014 -- Updated 2239 GMT (0639 HKT)
Conservatives know easing the trade embargo with Cuba is good for America. They should just admit it, says Fareed Zakaria.
December 20, 2014 -- Updated 0112 GMT (0912 HKT)
We're a world away from Pakistan in geography, but not in sentiment, writes Donna Brazile.
December 19, 2014 -- Updated 1709 GMT (0109 HKT)
How about a world where we have murderers but no murders? The police still chase down criminals who commit murder, we have trials and justice is handed out...but no one dies.
December 18, 2014 -- Updated 2345 GMT (0745 HKT)
The U.S. must respond to North Korea's alleged hacking of Sony, says Christian Whiton. Failing to do so will only embolden it.
December 19, 2014 -- Updated 2134 GMT (0534 HKT)
President Obama has been flexing his executive muscles lately despite Democrat's losses, writes Gloria Borger
ADVERTISEMENT