(UPDATED) Before slightly rising in May, the U.S. unemployment rate consecutively declined from 7.9 percent in January to 7.5 percent in April. Good news, right? Unfortunately, the overall declining trend does not capture what’s actually happening. For example, the unemployment rate does not count those who become frustrated and stop looking for work, or account for those whose hours have been cut back to make way for more part-timers not receiving benefits.

Available But Not Working

How big is the number of people who technically withdraw from the workforce each month because they are frustrated? Stated by the Department of Labor, in April, 2.3 million individuals were not counted in the labor force, but wanted and were available for work, and had looked for a job in the prior 12 months. They were excluded from the workforce, the Department of Labor says, because they had not searched for a job in the four weeks preceding the survey.

What about those who want to work, but did not seek employment in the last five weeks? The real unemployment figure, no doubt, is probably much higher. What’s more, the number of people who reluctantly accepted part-time jobs last month increased — another factor artificially driving down the unemployment rate. Why?

Involuntary Part-time Workers

According to the Department of Labor, “In April, the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 278,000 to 7.9 million.” “These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job,” the Department of Labor reported.

146 million people were employed in 2007 just prior to the Great Recession. In May 2013, there were 2.1 million fewer.

This makes sense. Due to economic and political uncertainty, many business owners say they have cut down the number of hours for existing workers, and to make up the slack, hired part-timers who do not require increasingly expensive benefits on the horizon, such as Obamacare.

This begs the question: how often is one 40-hour per week job broken into two jobs: one at 30 hours and one at 10 hours? Although the job numbers may appear to have improved, the conditions on the ground may not have changed very much.

A Heavy Lift

What will it take to get the real unemployment rate down to the previously normal rate of 5 to 6 percent? According to a 2011 report by McKinsey, a global management consulting firm, the United States will need to create 21 million new jobs within the decade to reach prerecession employment levels by 2020 and accommodate new entrants into the labor force. This figure breaks down to 2.1 million each year or 175,000 jobs each month. Is this likely? No.

Historically, 20.9 million net jobs were created in the 1970s, 18.5 million in the 1980s, 16.1 million in the 1990s, and 5.6 million in the last decade, according to the Labor Department’s Household data. And from May 2012 through April 2013, the number of total people working only rose from 142.3 million to 143.58 million representing a gain of 1.28 million.

The Civilian Non-Institutional Population, which includes members of the U.S. population age 16 or over who are not incarcerated, in the military or in homes for the aged, reached 245.2 million in April. Of this, the civilian labor force of 155.2 million — those employed and those technically unemployed but part of the labor force — resulted in a participation rate of 63.3 percent, the lowest rate since 1978.

When people stop looking for work due to frustration and technically depart the labor force, they drive the participation rate down. But there are other reasons why this rate is currently very low, including trends in the number of baby boomers retiring from the workforce, or immigrants, the youth, and women entering the workforce.

Regardless of how the numbers are sliced and diced, one fact remains: 146 million people were employed in 2007 just prior to the Great Recession. In May 2013, there were 2.1 million fewer.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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