Low unemployment, but …

The economic good news is the declining unemployment rate, particularly in Michigan. But when you look behind the headline number the jobs picture is a lot less positive. The unemployment rate decline has as much to do with a decline in the denominator (those in the labor force) as it does with a rise in numerator (those working). Both are true and both matter.

Neil Irwin in the Upshot section of the New York Times tells the national story in an article entitled The New Jobs Numbers Are Weaker Than They Look. Irwin writes:

For years now economy-watchers have been wondering when robust job creation would pull people who left the labor force during the recession back in. The reverse happened in June. The labor force participation rate — the proportion of the population either working or looking for a job – tumbled three tenths of a percentage point to 62.6 percent, which is the lowest in modern times. You have to go all the way back to 1977 to find a month when it was lower.

And then there is wages which are not rising. That shouldn’t be happening in a economy where available labor at least as measured by the unemployment rate is getting scarcer. Irwin continues:

You might expect the environment to be ripe for meaningful wage gains in 2015: The unemployment rate is inching closer to 5 percent, employers keep adding around three million jobs a year, and people aren’t coming back into the labor force to fill them. Anecdotal reports have major employers raising their entry-level wages, and state and local laws are increasing the minimum wage in many places.

But it isn’t coming through in the overall hourly earnings data, which is bouncing around at a rate of wage gains it has shown for years. Something has to give: Either employers will have to raise wages to coax more people into the labor force, creating a virtuous cycle of higher income growth and a larger economic pie, or job creation will have to slow way down to reflect the reality that the wages currently on offer aren’t enough to persuade more people to work.

The question now is which it turns out to be, and the June numbers offer little reason for hope that it will be the former.

Brian O’Connor in a terrific Detroit News article entitled Fewer Working in Michigan’s Recovery tells a similar story about the Michigan economy. He writes:

The good news is that after nearly 15 years, Michigan finally had narrowed an unemployment gap that widened to as much as 5.4 points above the U.S. rate during the recession. In April, the state dropped again to match the national jobless rate of 5.4 percent.

The bad news is that a big part of the reason the state jobless rate dropped was that since 2007, nearly 300,000 Michigan workers had given up looking for a job. Workers older than 60 retired early after finding no jobs available after the recession hit. And those younger than 25 stay on the employment sidelines in school, where they can borrow to cover their tuition. Others, however, in the peak of their working years, lack the education and skills needed for modern jobs. Add them into the unemployment calculations, and the official unemployment rate would more than double.

In a chart accompanying the article O’Connor shows that since 2007 the labor force in the US has grown by 2.5 percent while the Michigan labor force has declined by 5.5 percent. The details for metro Detroit are  particularly troublesome. O’Connor reports: “For every person who found a job between March 2014 and March 2015, 6.2 workers left the regional labor force, either returning to school, retiring, leaving the area or simply giving up on finding a job. While 10,000 Metro Detroiters got on a payroll during March, 62,000 others in the region decided they were better off giving up the hunt.”

Not good news!

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Lou Glazer

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.

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