The puzzle of the unemployment rate

William E. Spriggs

William E. Spriggs

By William Spriggs

The Bureau of Labor Statistics released its latest report on the job market on Aug. 2. It had some good news for African-Americans: The Black unemployment rate in July dipped to 12.6 percent, its lowest level since January 2009.

The BLS also reported that since August 2012 the unemployment rate for adult Black men (those older than 20) remains below its 14.4 percent level in January 2009 and was reported at 12.5 percent in July. More importantly, the share of Black men holding jobs continues to rebound from its record low of 56.5 percent in 2011 to 59.2 percent, almost equal its level of 60.4 percent in January 2009. That was the good news.

The bad news was that the unemployment rate for adult Black women (those older than 20) remained above its January 2009 level (though it did fall to 10.5 percent) and the share of adult Black women holding jobs, at 55.5 percent, is not showing much movement to return to its January 2009 level of 57.9 percent. Since more than half the Black workforce is female, it means the labor market news was mixed at best.

A big puzzle in looking at the changes in the Black unemployment rate is the fact the Black labor force is older now than during past major downturns in the mid-1970s and early 1980s. In 1975, the Black unemployment rate spiked to 15.4 percent. In 1982 and 1983, the Black unemployment rate skyrocketed to above 20 percent for a nine-month period starting in October 1982.

In terms of the overall unemployment rate rise and the drop in the size of the economy, the Great Recession downturn of 2008 was much more severe than both the 1975 and 1982 downturns, and the Black unemployment rate reached 16.8 percent in March 2010. But the Black labor force was much younger in the 1970s and 1980s, and younger workers have the highest unemployment rates (in July the unemployment rate for Black teenagers was 41.6 percent).

Today, the labor force participation of young Black workers is very low, so they do not influence the overall Black unemployment rate as much today. Only 37 percent of Black teens were employed or actively looking for work in July-that is, “in the labor force” and counted in the unemployment rate.

Among Black men, in 1975 and 1983, about one in four of those in the labor force was between 16 and 24. Today, that age group represents about one in six. So, the group with the highest unemployment rate is a smaller factor in today’s data. This downturn has driven the labor force participation of young people to all-time lows. Many have dropped out of the labor force for school (almost one in five African- Americans 16 to 24 is not in the labor force but enrolled in school), but many have just dropped out.

A little more than one in four African-Americans 16 to 24 is neither in school nor employed or looking for work). In 1975, 48 percent of the Black men in the labor force were older than 35. The 1983 downturn chased older workers out of the labor force-many choosing to retire or file Social Security disability claims-so the share of Black men in the labor force older than 35 fell to 45 percent. Today, 60 percent of Black men in the labor force (those employed or actively looking for work) are older than 35. This is the group with the lowest unemployment rate, suggesting the rate today is lower than would have been the case in 1972 and 1983 when younger workers remained a bigger share of the Black labor force. So this complicates comparing unemployment rates across time, making it a paradox that Black unemployment is high with such a high share of older workers.

Part of the resolution of this paradox is that while older workers have low unemployment rates, they get stuck in the unemployment rut. Almost 40 percent of the 2.5 million unemployed African-Americans in July have been unemployed longer than six months. This is another marked feature of the Great Recession. In 1975, the share of long-term unemployed among unemployed workers peaked at 21percent. In the 1982-83 downturn, the long-term unemployed got up to 26 percent of the unemployed. In this downturn, the share of long-term unemployed reached 44.9 percent.

Each month, the BLS also reports on the flow of workers into, and out of, unemployment. The employed can become unemployed or retire, and the unemployed can get a job, or quit and drop out of the labor force, or remain stuck looking for work another month. July continued the pattern that the unemployed were more likely to drop out of the labor force than to land a job, and the majority remained stuck looking for work. Of the almost 12.5 million unemployed Americans in June, 55 percent remained unemployed in July.

People are getting stuck because the hiring rate in the economy-the share of jobs that are from new hires-remains stuck at a low near 3.1percent. So, new opportunities are not being created to clear the backlog of people stuck in the unemployment line. Basically, the employment market is now like a still pond rather than a flowing river. Each month, few people who are employed are quitting and getting another job, and few firms are hiring new workers. In a normal market, things are more dynamic, with firms hiring and workers switching jobs. That “rolling” of the job market creates lots of hiring opportunities.

So while there was some good news in the numbers for African-Americans in the July report, the labor market remains underperforming. At the current rate of job creation, we are still more than six years away from making up the backlog of unemployed and underemployed workers. For young people, that is six years too long.

Members of Congress are back at home in their districts. Republicans appear prepared to return to Washington in September so they can hold up any discussion of generating jobs in favor of cutting the Supplemental Nutrition Assistance Program (food stamps), and continuing the sequestration and its cuts to Head Start, housing assistance and extended unemployment benefits-programs that put money into the pockets of American workers struggling to survive the worse labor market since the Great Depression.

Despite a reversal in trend from the huge and ballooning deficits that the tax cuts to America’s richest 5 percent from the Republican tax agenda of 2001 and two unfunded wars and the greatest loss of jobs and American household income since the Great Depression, Republicans appear prepared to hold the government and the American people ransom to their fixations on “Obamacare” and the long-run cost implications of Medicare.

The president has been out to rally America so we can focus instead on the immediacy of the lack of jobs and income. Let’s hope Republicans hear the concerns of people outside Washington, not the wealthy lobbyists who want to avoid paying their fair share to clean up the mess of the economy.

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