Jobs and the Unemployment Rate

Currently, the unemployment rate here in the United States stands at 4.9%. This measure is one of the most talked about economic numbers we have available to us, and so people often use it as a gauge of how well the economy is doing. Thus, a reading as low as 4.9% is interpreted by most people as an indication that our economy is alive and well. However, I tend to buy into the argument that the unemployment rate doesn’t necessarily reflect the underlying strength of what is going on. In this article I hope to shed some light on why some people believe this to be the case.

There are a few different avenues that economists take in arguing that the current unemployment rate is a bad representation of the overall health of the economy. In this article, however, I will focus on the main criticism which argues that the unemployment rate simply reflects the amount of jobs in our country while ignoring the quality of those jobs. For example, our country might gain 100,000 jobs in a given month, but if those 100,000 jobs are not high quality jobs then the people working them will likely have very little disposable income to spend and induce growth compared to individuals with higher quality jobs. This can be seen if we consider an example comparing an engineer and bartender. If both are hired in the same month, I would argue that our economy is going to benefit to a greater degree from that engineer because that job is probably full time and will likely allow that individual to spend more than the bartender would be able to. It is this idea that I will carry forward throughout this article.

My first element of proof will be to look at the amount of people receiving aid from the federal government’s Supplemental Nutrition Assistance Program (Food Stamps). The eligibility of a person to receive this aid is based upon income and the number of dependents that person has.  Below I have constructed a graph showing the percentage of the United States population receiving food stamps:

food stamps

We can see from the chart that between the 1960s and 2009 the percentage of the population receiving food stamps was somewhat bound to between 6 and 10 percent of the population. However, following the financial crisis the percentage of people receiving assistance surged to well over 14 percent. Such a quick rise is not so surprising, though, when we consider the intensity of the recession that occurred during that period. The surprising aspect comes when we note that those extreme levels have barely inched down despite the apparent recovery of our job market. This leads us to somewhat of a contradiction. If so many more people now have jobs, as indicated by the unemployment rate, why are there millions of people that still require assistance for basic food? The answer might be that the quality of those newly created jobs is low.

Next we will examine two ratios that tend to move in tandem with one another. The first will be the ratio of full-time workers to part-time workers. The second will be the ratio of people working part-time for non-economic reasons to people working part-time for economic reasons. Below is a graph depicting these ratios for the past 30 years:

job ratiosWhen we compare the periods before and after the Great Recession we see that both ratios have spent much of the last 8 years well below previous levels. At the end of 2007 the full-time to part-time ratio was about 5.5. Today, that ratio stands at 4.9. This means that prior to the recession there were 5.5 full-time jobs for every single part-time job in our economy, and now there are just 4.9. This difference might not sound that large at first but consider the fact that the total number of jobs in our economy is right around 143.56 million. So the difference between a 5.5 and 4.9 ratio is the difference of about 2.246 million jobs, or about 1.56% of the total number of jobs.  And 1.56% is a big number compared to an unemployment rate of 4.9%.

From the graph above we should also interpret the part-time non-economic to economic ratio. Prior to the recession this ratio was about 3.2. Today, that ratio stands at 2.5. This difference indicates that a greater proportion of people today compared to the period before the Great Recession are working part-time jobs due to economic reasons. These reasons vary but include things like the following:  a person was only able to find part-time work or slack business activity led to fewer available hours at a business.

So if we consider the conclusions from each of the previous two paragraphs we see that despite a low unemployment rate of 4.9% a greater proportion of people are working part-time now than prior to the recession and a greater proportion of people are working part-time due to economic reasons. Taken together, these ideas seem to support the thesis that the quality of jobs added since the Great Recession has been low.

Below is a chart that depicts a phenomenon similar to the above argument:

This chart from Zero Hedge compares the total amount of jobs lost and added in the restaurant/drink industry and in the manufacturing industry. Since the recession we see that the number of jobs in food has surged while the amount of manufacturing jobs hasn’t recovered. So if we just consider these two industries we can see how more part-time jobs creep into the picture since a large amount of those restaurant and bartender jobs are part-time and probably a large portion of the manufacturing jobs lost were full-time jobs.

My last piece of evidence examines the number of people holding multiple part-time jobs. Below is a chart depicting this information:
multiple jobholdersThis chart depicts a disturbing trend in our country as we can see that the number of people holding multiple part-time jobs has been trending upwards since about 2003. The fact that this has been trending upward since 2003 might suggest this increase is not due to cyclical factors like the recession but instead due to structural problems. In fact, this graph probably helps illustrate why so many minimum wage workers are mad and want the minimum wage raised because many of them have to work more than one job to get by. Thus, the graph and this argument might help bridge the gap between the food stamps chart and the rest of the charts. The fact that more and more people are holding multiple part-time jobs suggests that a greater number of people are living in poverty and require help. And in our economy where a greater proportion of jobs are part-time than prior to the Great Recession this does not bode well. With this evidence in hand, I think it is reasonable to buy into the argument that a 4.9% unemployment rate does not indicate our economy is healthy like it might have in the past. The truth is our economy is still quite weak and is standing on stilts that could easily break if too much stress is applied.

Add a Comment
