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
July 27, 2014 -- Updated 1615 GMT (0015 HKT)
Megan McCracken and Jennifer Moreno say it's unacceptable for states to experiment with new execution procedures without full disclosure
July 28, 2014 -- Updated 1635 GMT (0035 HKT)
Jeff Yang says it's great to see the comics make an effort at diversifying the halls of justice
July 26, 2014 -- Updated 1555 GMT (2355 HKT)
Rick Francona says the reported artillery firing from Russian territory is a sign Vladimir Putin has escalated the Ukraine battle
July 27, 2014 -- Updated 1822 GMT (0222 HKT)
Paul Callan says the fact that appeals delay the death penalty doesn't make it an unconstitutional punishment, as one judge ruled
July 24, 2014 -- Updated 2225 GMT (0625 HKT)
Pilot Robert Mark says it's been tough for the airline industry after the plane crashes in Ukraine and Taiwan.
July 25, 2014 -- Updated 1510 GMT (2310 HKT)
Jennifer DeVoe laments efforts to end subsidies that allow working Americans to finally afford health insurance.
July 26, 2014 -- Updated 1533 GMT (2333 HKT)
Ruti Teitel says assigning a costly and humiliating "collective guilt" to Germany after WWI would end up teaching the global community hard lessons about who to blame for war crimes
July 25, 2014 -- Updated 1245 GMT (2045 HKT)
John Sutter responds to criticism of his column on the ethics of eating dog.
July 25, 2014 -- Updated 1302 GMT (2102 HKT)
Frida Ghitis says it's tempting to ignore North Korea's antics as bluster but the cruel regime is dangerous.
July 25, 2014 -- Updated 1850 GMT (0250 HKT)
To the question "Is Putin evil?" Alexander Motyl says he is evil enough for condemnation by people of good will.
July 24, 2014 -- Updated 1803 GMT (0203 HKT)
Laurie Garrett: Poor governance, ignorance, hysteria worsen the Ebola epidemic in Sierra Leone, Guinea, Liberia.
July 24, 2014 -- Updated 1349 GMT (2149 HKT)
Patrick Cronin and Kelley Sayler say the world is seeing nonstate groups such as Ukraine's rebels wielding more power to do harm than ever before
July 23, 2014 -- Updated 2205 GMT (0605 HKT)
Ukraine ambassador Olexander Motsyk places blame for the MH17 tragedy squarely at the door of Russia
July 24, 2014 -- Updated 1142 GMT (1942 HKT)
Mark Kramer says Russia and its proxies have a history of shooting down civilian aircraft, often with few repercussions
July 24, 2014 -- Updated 1853 GMT (0253 HKT)
Les Abend says, with rockets flying over Tel Aviv and missiles shooting down MH17 over Ukraine, a commercial pilot's pre-flight checklist just got much more complicated
July 24, 2014 -- Updated 1317 GMT (2117 HKT)
Mark Kramer says Russia and its proxies have a history of shooting down civilian aircraft, often with few repercussions
July 24, 2014 -- Updated 1637 GMT (0037 HKT)
Gerard Jacobs says grieving families and nations need the comfort of traditional rituals to honor the remains of loved ones, particularly in a mass disaster
July 24, 2014 -- Updated 1413 GMT (2213 HKT)
The idea is difficult to stomach, but John Sutter writes that eating dog is morally equivalent to eating pig, another intelligent animal. If Americans oppose it, they should question their own eating habits as well.
July 23, 2014 -- Updated 1630 GMT (0030 HKT)
Bill van Esveld says under the laws of war, civilians who do not join in the fight are always to be protected. An International Criminal Court could rule on whether Israeli airstrikes and Hamas rocketing are war crimes.
July 23, 2014 -- Updated 1408 GMT (2208 HKT)
Gordon Brown says the kidnapped Nigerian girls have been in captivity for 100 days, but the world has not forgotten them.
ADVERTISEMENT