Obama's 'Less Economy': Americans Facing Less Work, Less Reward

Under Barack Obama, unemployment has declined due to a drop in labor participation, not more jobs.

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The political season has begun in earnest, with each side putting forth facts and figures hoping that the persuasive power of statistics will bolster the weaker argument. It was Mark Twain who popularized the comment attributed to Disraeli, to wit, that there are three kinds of lies: lies, damned lies, and statistics. So don't be impressed by the fact that the most popular unemployment rate being bandied about dropped to 8.1 percent in April from 8.2 percent in March.

Progress? Not so. Paradoxically, the reason for the drop is negative, not positive. It is due solely to the fact that 342,000 discouraged workers who were seeking employment dropped out of the labor force and are no longer counted as unemployed. Without that withdrawal, the unemployment rate would have risen to 8.4 percent in April. In fact, if the labor force participation rate had remained where it was in June 2009, when the recession officially ended, the headline jobless rate would be north of 11 percent.

[See a collection of political cartoons on the economy.]

Every basis point decline in the unemployment rate, which peaked at 10 percent in October 2009, has been due to the drop in the labor force participation rate and not in the growth of real employment. A steady stream of men and women and young people got tired of looking for work that isn't there.

The 8.1 percent unemployment rate seized upon by the government and the media accounts only for those people who have actively looked for a job in the previous four weeks and haven't found one. It's called the U-3 rate. But there's a nastier categorization—the U-6 rate. It's the more relevant measure. Why? Because it covers those people who have actively applied for a job in the last six months and also accounts for not just full-time unemployment but for involuntary, part-time employment as well. That number is still at 14.5 percent, the highest it has ever been so far into a so-called economic recovery.

Not to mention that warm weather boosted winter employment in the first three months of the year—Goldman Sachs, for example, estimated at least 100,000 jobs—and much of that will wash out eventually. David Rosenberg, chief economist at the Gluskin Sheff wealth management firm, points out that if you strip out the sectors that should have benefited most from the balmy winter (the warmest since 1895), real GDP actually contracted at a 0.2 percent annual rate and final sales shrank by nearly 1 percent.

[David Shulman: Warm Winter May Have Cooked Economic Data]

That's not all. There is a little-known category of job creation called the birth/death model, a seasonal adjustment in which the Bureau of Labor Statistics (BLS) arbitrarily adds jobs for net new companies it thinks are starting up and creating positions. Last month, the BLS made the assumption that 206,000 jobs were created in this category based on the companies that it thinks, but really can't prove, have just started up and essentially are invisible to government labor surveys. This is an imprecise, controversial guesstimate based on historical extrapolation. One must be skeptical, since this figure of 206,000 rose from 172,000 in April 2011 despite the obvious decline in economic activity this spring and the general lack of financing for start-up companies.

Right now, it looks as if the only people getting jobs are in the 55 and older cohort. According to the BLS household survey, employment for those age 55 and up has risen 3.8 million since the recession began in December 2007, whereas the ranks of the employed in the under-55 age cohort have shrunk by 8.2 million. But as aging baby boomers remain in their jobs, youth employment shrinks; the unemployment rate for teenagers is now at 25 percent.

[Photo Gallery: Jobless Keep Searching for Work]

According to the BLS, job increases have been virtually cut in half this year alone, from 277,000 in January to 130,000 in April. But we need 150,000 new jobs each month just to keep up with new people trying to enter the labor force. Much of the job "growth" has been in sectors such as healthcare and tourism, low-wage work that hasn't been exposed to global competition. And perhaps as many as half of all new jobs have been part time. The result is some good jobs at the top and plenty at the bottom but not enough in the middle.