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EconomicPolicyInstitute

The latest unemployment report released last week contained more sobering data. Although the nationwide unemployment rate dropped to 9.4% in December from 9.8% in November, a large part of that decline reflected unemployed workers who left the labor force and were no longer counted among the unemployed.

A shrinking labor force

Economist Heidi Shierholz, in her analysis of the new data, noted that the labor force is now smaller than when the recession began three years ago, even though the U.S. population has grown since late 2007. Because of the growth in working-age population, she said, the labor force should have increased by about 4.2 million workers since late 2007. Instead, the workforce has declined by 246,000 and the pool of missing workers – who are not working but not counted as unemployed – now numbers about 4.4 million.

“If just half these workers were currently in the labor force and were unemployed, the unemployment rate would be 10.7% instead of 9.4%,” she said.

This trend of discouraged workers leaving the labor force cast a cloud over the report’s good news of a drop in the unemployment rate. As Shierholz noted, “The U.S. is still near the bottom of a deep crater. “ This image from her analysis illustrates how the job loss in the Great Recession has been much greater and much slower to come back than in any other post-War recession.

EPI’s coverage of the latest jobs data received widespread media coverage in CNN MoneyThe Dallas Morning NewsThe Huffington PostThe New Yorker’s economics blog, and the Los Angeles Times, which lead with the headline, “Lower unemployment rate may mean people just gave up looking for jobs.”

U.S. companies help create jobs overseas

In a year when fewer than one million domestic jobs were created, International Economist Robert Scott calculates that the growth in the U.S. trade deficit in 2010 created 1.4 million jobs overseas in 2010 and that many of those jobs were outsourced by American companies.  “But for the growth in the U.S. trade deficit, we would have created about 2.5 million jobs last year, enough to drive down the unemployment rate well below 9%,” said Scott. Scott’s calculation was cited by the Associated Press and the story ran in many newspapers around the U.S.

Scott said the trend of U.S. companies creating jobs abroad helps to explain why U.S. unemployment remains high, even though many companies are reporting strong profits. “There is a huge difference between what is good for American companies versus what is good for the American economy,” Scott said.

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