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Eric Davis: Unemployment stats misleading

In last week’s State of the Union speech, President Obama took credit for “the lowest unemployment rate in over five years.” On the surface this claim is correct. By the Labor Department’s commonly used measure, 6.7 percent of Americans were unemployed in December 2013, the lowest since October 2008.
Many economists have analyzed data on employment and unemployment over time. This work shows that, for many Americans, the job market is still far from full recovery mode.
The commonly used measure of unemployment reports the percentage of people in the labor force who do not currently have a job. This measure underestimates the true extent of unemployment, because it excludes two categories of people: those who have dropped out of the labor force because they are too discouraged to look for work, and those who are working part-time even though they would like full-time jobs.
The Labor Department’s website includes data on an alternative measure of unemployment, called U-6, which includes both the discouraged workers and the part-time workers who would like full-time jobs. According to this measure, 13.1 percent of Americans were unemployed, or under-employed, in December 2013.
The current U-6 rate is nearly twice as high as the commonly reported unemployment rate, and is much higher than at comparable points in previous economic cycles. During the expansions of the mid-1990s and mid-2000s, the U-6 unemployment rate was typically about 8 percent four or five years into those recoveries.
Data released last week by the Vermont Department of Labor show the effects of these trends in our state. By the common measure, Vermont’s unemployment rate in December 2013 was 4.2 percent, one of the lowest in the nation. Because discouraged workers are dropping out of the Vermont labor force, and because Vermont’s population is aging, the size of the state’s workforce has declined in recent years, even though, by many measures, the state’s economy is expanding.
Tom Kavet, the Legislature’s consulting economist, notes that the Vermont labor force is now the smallest it has been since the late 1970s or early 1980s, even though the state’s population has grown by more than 20 percent over the past 35 years.
The political implications of these developments are profound. One reason for President Obama’s low approval ratings is the perception among many Americans that the effects of the economic expansion have not trickled down to them.
Even though the causes of unemployment and under-employment may be trends such as globalization and the export of jobs, or the replacement of middle-level skilled positions by automated processes and robots, many people will hold the president responsible if their economic conditions are not as good as they would like them to be. I will be interested to see whether, in the dozen or so competitive states that will determine control of the U.S. Senate in this fall’s elections, these perceptions will work to the benefit of Republican Senate candidates, even though a Republican takeover in the Senate might very well result in complete gridlock in Washington for the next two years.
Here in Vermont, the reduction in the size of the labor force poses a challenge to the Shumlin administration as it tries to develop a plan to pay for a single-payer health care system. The governor has indicated that a payroll tax will likely be one of the main revenue sources for single-payer. However, if the state’s labor force is shrinking, a payroll tax is unlikely to generate enough revenue over the long term to pay for the costs of health care for most Vermonters.
Eric L. Davis is professor emeritus of political science at Middlebury College.

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