Buying Quality Performance

Now you see them…

The Economic Policy Institute (EPI) have been charting workers missing from the US economy – not working, but not classified as ‘unemployed’ either. As of last month their calculations show over 6 million people of working age fit this category. If these missing workers start looking for work, or are otherwise recognized as being unemployed, the unemployment rate in the US would jump from 7.3% to 10.8%.

Missing potential workers

Source: Economic Policy Institute

The jobs policy vacuum has nothing on the political tumbleweed blowing around this economic inactivity. Indeed the situation is likely to deteriorate further as cuts to SNAP (Supplemental Nutrition Assistance Program, better known as Food Stamps) and the ending of extended Federal unemployment insurance (Emergency Unemployment Compensation, EUC, payable to some unemployed individuals after state financial assistance runs out) take hold. The White House have moved on the latter – asking Congress for an extension until the end of 2014. Spokesman Jay Carney:

“These benefits are crucial for maintaining incomes of the unemployed and their families, and it has been shown to reduce poverty and increase the changes of returning the unemployed worker to a good job”

How smoothly this request will pass through the House is yet to be seen, but it is essential to ensuring that more of those currently recorded as unemployed (and regularly jobsearching) don’t join the growing ranks of missing workers.

…Now you don’t

The spike in unemployment caused by the great recession has been falling – and with it the numbers of people who are long-term unemployed (measured as out of work for 26 weeks plus). Indeed, in the last year the total number in the latter category fell by 725,000. Given the make-up of this group and the re-entry difficulties faced by those out of the labor market for prolonged periods this should be cause for celebration. However, the headline decline is less than half the story. The question of what has happened to those 725,000 people is central to a sustainable recovery – not just for the country, but for the individuals and families affected by unemployment.

Some may have moved into work, or gone back to school, or family lives may have been reconfigured so they take over caring roles. Some may have retired – although the demographic make up of the group doesn’t suggest this would have been in large numbers. Some may have moved onto disability benefits.[1] However, a significant proportion have moved further from the labor market and the chance of ever returning to work. In the technical terms they have become ‘marginally attached’[2] or even worse ‘discouraged’[3].

Transitions from unemployment to inactivity are not straightforward to evaluate. Understanding the dynamics between insecure employment, unemployment, marginal attachment and discouragement is difficult as the data is not set up to track in this way. EPI economist Heidi Shierholz notes:

“We can’t observe where the long-term unemployed have gone, but given that job opportunities have basically not improved at all over the last year, I am sure many of them are dropping out of the labor force.”

The Bureau of Labor Statistics (BLS) are able to produce data on labor force status flows to analyze transitions.[4] The figures are drawn from the Current Population Survey, a monthly sample survey of about 60,000 households and the source for the unemployment data. The ‘unemployed’ classification is based on a declaration of being out of work but looking for work; the sample is not asked about receipt of unemployment insurance. While this series is much more volatile than other data produced by BLS, it is possible to identify trends, track individuals and assess status changes, although the reasons for those changes (returning to school or giving up hope of ever working again) cannot be gleaned.[5]

Another important factor in understanding the current unemployment situation in the US is the size of the working population. Despite falling unemployment, the employment rate is at its lowest since 1986, and the Labor Force Participation Rate sits at 63.2%, the lowest since 1978 (when there were fewer women in the workforce).

Labor Force Participation Rate 1984-2013

Source: Bureau of Labor Statistics

Betsey Stevenson, a member of President Obama’s Council of Economic Advisors, suggests that there are some benign reasons for the fall:

The demographic reality of an aging population with a long lifespan actually underscores the vital importance of ensuring that those people able to work are given every opportunity and support to do so. The key to this is the growing bank of people of working age who are out of work, not looking for work but able and willing to work if jobs were available.

“Rife with head-scratching illogic”[6]

This group – the missing workers, discouraged and inactive – hitherto ignored, needs to be placed front and centre of a comprehensive plan for jobs. However, instead of a focus on decreasing inactivity amongst those of working age, the policy trend is towards entrenching poverty and disadvantage, making it harder for people to move into work, and for those in insecure work to stabilize their futures. The ending of Federal unemployment insurance (EUC) in the next few weeks is estimated by the National Employment Law Project to affect up to two million people at a time where there are almost 3 unemployed people to every vacancy. All evidence suggests that the biggest impact this will have is to push people from unemployment to inactivity. Supporting people to continue to look for work makes sense, pushing them further from the labor market does not. President Obama’s call to extend EUC needs to be heeded.

Cuts like this are often sold as ‘savings’, completely disregarding the human and economic cost of fewer people working and the impacts that ripple out across families and communities. Unemployment Insurance is a lifeline for many and a policy lever enabling government to keep people connected to the labor market. Fighting an extension will have an impact on unemployment figures, but is unlikely to have a positive effect on the numbers in employment making victory hollow, and ultimately costly.