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In Jobless Data, Devil May Be In Details

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The Labor Department releases its reports on August unemployment on Friday. What economists are expecting is by now a familiar story: That August did not generate enough job growth to move the needle on the jobless rate. But the most intractable part of the jobless problem might be the one that doesn't show up in the numbers.

The unemployment rate is expected to tick up slightly to 9.2 percent. Two years ago, the unemployment rate was 9.5 percent.

Although that sounds like an improvement, you have to look at the reason for that decline to know the whole story, says Howard Rosen, an economist at the Peterson Institute.

"It's not because we're necessarily finding jobs for the unemployed, it is because people are dropping out of the labor force and no longer looking," he said.

The operative word there is "looking." The unemployment rate is calculated using the labor force. And the labor force, by definition, includes only those who are working or who are looking for work.

Rosen says a key reason the jobless rate has gone down is that some people have retired early, they've gone back to school, or they're so discouraged that they just gave up sending out resumes or knocking on doors.

Rosen says it's the first time in a half-century that the labor force is decreasing. Baby boomers are exiting the workforce. But even taking that into consideration, Rosen says, in the past two years the labor force should have grown by nearly 4 million. Instead, it has decreased by 1 million.

Rosen worries that the implication is not just lost productivity in the short term.

"Over the long term, this really is a drag on the potential GDP growth, because as you lose the working force, that takes away from how much you can grow the economy," he said.

Having people benched from the job market for protracted periods of time brings other problems.

Christine Owens, executive director of the National Employment Law Project, a worker advocacy group, tells the story of a 47-year-old Ohio man who lost his job in a corporate restructuring two years ago, and hasn't had luck finding a new one. She says the man decided to keep paying his mortgage at the expense of some of his other bills.

"So now his bad credit rating is also affecting his employability," she said. "His mortgage company is threatening to end his participation in a home modification program even though they've been making their payments. And they've depleted their family savings."

Owens says the Ohio man is a good example of how a bad job market can perpetuate itself. There are, of course, millions of people like the Ohio man. He can't spend money because he can't find a job. Businesses around him aren't making money from people like him, and therefore they don't hire.

"It's hard to see how we can address the crisis we now face by just letting market forces work, because they are clearly not working," Owens said.

Economists worry that the long-term jobless problem could create an entire lost generation of workers. People who stay out of work too long risk losing their skills, which makes it even harder for them to re-enter the workforce.

One way Owens and others say unemployed people can stay connected to the working world is by honing their skills through job training. She says such programs were successful after World War II. Owens says she hopes President Obama announces something next week — when he unveils his new jobs plan — that can help those discouraged workers come back into the workforce.

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