The Jobs Market Isn’t As Good as It Appears .
Bottom Line: Has the jobs market been strong during the post-COVID lockdown recovery? Yes. Have businesses and whole industries struggled to fill job openings during it? Yes. Is there a lot more to the story? Heck yes. One of the most oversimplified ways the labor market is commonly reported, is by simply reporting on the unemployment rate. The unemployment rate, especially in recent years, isn’t all that it appears. Commonly, people take the unemployment rate at face value, comparing where we are today compared to where we’ve been. The problem with that type of analysis...it’s incomplete because it’s not an apples-to-apples comparison.
Here’s what the unemployment rate actually measures...
- The unemployment rate represents the number of unemployed people as a percentage of the labor force (the labor force is the sum of the employed and unemployed). The unemployment rate is calculated as: (Unemployed ÷ Labor Force) x 100.
Right, so it’s impossible to know what the unemployment rate represents, without knowing the labor force participation rate. Otherwise, theoretically, you could have everyone in the workforce decide to drop out and the unemployment rate would be zero...but that certainly wouldn’t be a good thing. So, let’s take a closer look at what’s really happening here.
The most recently reported unemployment rate is 3.6% nationally, even by that measure we’re still not quite back to the pre-pandemic lows of 3.5%. So, the fact that the unemployment rate remains higher than prior to the pandemic, yet the labor market – even in a recession, appears to be tighter than prior to the pandemic (as measured by job openings relative to those seeking employment) - tells you there’s a labor force participation story playing out. And as you might have inferred...it’s not a good one.
Here’s what the labor force participation rate is:
- Labor force participation rate is the proportion of the population ages 16 and older that is economically active: all people who supply labor for the production of goods and services during a specified period
Right, so if fewer people decide to work – it drops. And if they’re not in the labor force – they're not counted as part of the unemployment rate. This is the real story of what’s been going on. Not only isn’t the unemployment rate back to where it was pre-pandemic. The labor force participation rate isn’t close to being back to where it was. And what’s more...it’s falling.
The labor force participation rate had hit a seven year high in February of 2020 – heading into the impact of the pandemic. The rate was 63.4%. So where are we today? 62.2%. It's been falling since March. Every percentage point in labor participation equals 2.637 million people. See where this is going? If we go back to the labor force participation rate in February of 2020 and compare the impact to today – here's the reality on the ground.
- There are 3,164,461 fewer Americans in the workforce today compared to pre-pandemic levels
That’s huge, right? And would you have ever guessed that would have been the case if you only looked at an unemployment rate which was 0.1% higher? With well over three million able bodied Americans dropping out of the work force during the pandemic, it’s why so many businesses and so many industries have struggled to fill openings. It’s why, even in a recession, there are still more job openings than those currently seeking employment. Some of this is due to older Americans choosing to retire earlier than they would have. Some of this is due to people taking advantage of government assistance programs to avoid working. But regardless of the reasons, why it happened. It has happened and it’s the real story behind the current labor market. And it’s the one that’s ironically not told.
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