In the last several months, there’s been a slow and steady decline in the U.S. unemployment rate, which decreased to 8.3 percent according to a February 3 report from the Bureau of Labor Statistics. The report stated that total nonfarm payroll had risen by 243,000 in the month of January, and the private sector had seen gains in the hospitality, manufacturing and business services industries.
Good news, to be sure, but there’s a catch. The Bureau of Labor Statistics bases its data on a definition of the word “unemployed” that only includes people who have actively sought work in the last four weeks. It doesn’t include people who only hold part-time jobs. It excludes people who have been unemployed for so long that they’ve simply stopped looking. And it excludes people who are looking for work, but so lackadaisically that describing them as “actively” looking is a stretch.
That’s a lot of people to exclude from the official statistics. More to the point, those people are still out there and still hoping to cobble together a living somehow. So who are they, and what have they been doing since they fell off the Bureau of Labor Statistics’ radar?
“It can be everyone from the homeless, younger folks who moved in with parents, or siblings moving in with other siblings, to people who become entrepreneurs, homemakers or go on sabbatical,” said Michael D. Hayes, owner of Momentum Specialized Staffing in Phoenix, Ariz. “These combined probably add up to a lot of people, enough to move the needle five to 10 percent.”
Some started their own businesses after leaving the workforce behind. Jay Savulich, director of programs at the non-profit organization Rising Tide Capital, says his company sees many unemployed people who fall outside of the Bureau of Labor Statistics’ data. “We often work with people who start their own businesses because they have been laid off," says Savulich. "However, we also see those who make a conscious choice to leave their jobs in order to pursue their own enterprises.”
Laura Vogel, a freelance writer from Los Angeles, describes herself as “underemployed.” She last had a full-time job in 2007, and she is ineligible to collect unemployment benefits. She estimates that she currently earns between $1,000 and $2,000 a month, which she simply can’t live on. “I have recently filed for bankruptcy, since my credit card debt was crushing me,” she said. “I didn't use my cards for Louis Vuitton handbags or fancy meals out — it was things like paying for my own health insurance that really did me in.”
She said that dropping unemployment rates have no effect whatsoever on her bottom line, and she is highly skeptical of what the future holds for her. ”The L.A. Times laid off a slew of editorial staff a few years ago, and those jobs aren't coming back," she said. "It's a very frustrating situation for me, because I honed my skills in my chosen field — magazine and newspaper editorial — for 20 years, and the bottom has completely fallen out. I feel like a telegraph operator at the moment the phone was invented.”
In addition to forming an incomplete picture of the workforce, the unemployment numbers may have a negative effect on the stock market, according to Nicholas Olesen, a wealth manager from King of Prussia, Pa. He believes that it will be bad for the newly bullish when the underemployed and long-term unemployed start looking for work again.
“[The unemployment rate] is giving a false sense of how many people are working and how strong the labor force is,” he said. “Once these people start looking again, the numbers will get worse and people's confidence, which has helped investors feel comfortable with investing now, will decrease.”
While an improving unemployment picture is certainly cause for optimism, it’s important to remember that millions of American workers have been left out of it. Until the employment situation improves enough to address the needs of the underemployed and the long-term unemployed, popping the champagne corks to celebrate a robust job market will always be premature.