Today we will focus on the real rate of unemployment – IF we count: 1) all those who are out of work, 2) those who have quit looking for work and 3) those who are working part-time because they can’t find full-time jobs. If we also include all those who are in college because they couldn’t find jobs, the US unemployment rate rises to 18%
But before we get to that, let me comment briefly on yesterday’s advance report on 2Q GDP. The government reported that 2Q GDP rose 4.0%, which was better than the pre-report consensus of 3.2%. Consumer spending, inventory building and exports were all better than expected in the 2Q.
The Commerce Department also revised upward its 1Q GDP estimate from -2.9% to -2.1%, which was unexpected. Overall, yesterday’s GDP report was a positive surprise, but bonds sold off sharply on the better-than-expected economic news. I’ll have more analysis in next Tuesday’s E-Letter.
The Labor Department is expected to report tomorrow that the economy added 235,000 jobs in July, and the unemployment rate remained steady at 6.1%. Yet while the jobless rate may be down from its recession peak of 10%, much of this decline results from those who have quit looking for work altogether because they are discouraged by the lack of decent job openings. These adults who are not actively looking for work are not counted as unemployed.
Some argue that the huge drop in the labor force participation rate, to the lowest level in 37 years, is largely because of Baby Boomers retiring. But that only accounts for about half of the participation rate decline. Actually, there are more adults over 65 working today than before the recession. Why? They don’t have enough money to retire.
Many Americans who would like full-time jobs are stuck in part-time positions because businesses can hire desirable part-time workers to do the job, but at lower wages. And that also allows them to avoid Obamacare’s employer health insurance mandates that don’t apply to workers on the job less than 30 hours a week.
Since 2000, Congress has enhanced the “earned income tax credit” and expanded programs that provide direct benefits to low-income workers, including food stamps, Medicaid, Obamacare, and rent and mortgage assistance. As I have pointed out recently, there are now more Americans getting some type of government benefits than there are in the entire workforce.
As family incomes rise, either by getting higher pay or working more hours, most of the benefits noted above phase out. As a result, these programs discourage work and new skills acquisition, and encourage single parents and even one partner in married households not to work. Often, these programs motivate single people to work only part-time.
Undocumented immigrants face more difficulties accessing these federal and state benefits programs. Yet lax immigration enforcement permits them to openly take jobs that lower-income Americans don’t want because it would reduce or eliminate their government benefits. This, too, keeps the real unemployment rate high.
If we add in discouraged adults who say they would begin looking for work if conditions were better, those working part-time but say they want full-time work, and the fact that immigrants take most of the low-paying jobs, the real unemployment rate is around 15% –and that is a conservative estimate.
If we count those Americans who are enrolled in colleges and universities simply because they can’t find work, the real unemployment rate jumps to at least 18%. Making matters even worse, most of these people will pile up a load of debt in the form of easy-to-access federally-sponsored student loans.
Looked at differently, the economy created only about 6 million new jobs during the Bush-Obama years, whereas the comparable figure during the Reagan-Clinton period was about 40 million new jobs. A recent study by the Center for Immigration Studies shows that the vast majority of all the new jobs created since 2000 went to immigrants.
Keep all this mind when you hear tomorrow that the government’s estimate of US unemployment is only around 6.1%.
Finally, the Fed concluded its latest policy meeting yesterday, and as expected, the FOMC moved to reduce QE purchases by another $10 billion to $25 billion per month. The policy statement released after the meeting contained no new surprises and continued to say that the Fed funds rate will remain near zero for “a considerable time after the asset purchase program ends…”
What do you think? Post your comment.