That rising tide seems to be missing a lot of boats

Published in The News Tribune, March 14, 2013.

Another encouraging sign of slow economic recovery came last week from the Bureau of Labor Statistics (BLS). It reported that nationwide, February experienced a net increase of 236,000 new jobs.

A year ago, unemploy-ment sat at 8.3 percent; today it is 7.7 percent. A painfully slow improvement, for sure, but at least the labor market is headed in the right direction.

Or is it? We vigilantly track figures such as unemployment rates and growth in gross domestic product (GDP) because we presume these represent meaningful measures of the quality of lives we lead. If there are fewer unemployed among us or more income to go around, surely we are in some sense better off?

Indeed, this “rising tide lifts all boats” assumption that is built into our fixation with indicators like unemployment rates and GDP growth was a fairly safe one to make in the past. Until a generation ago, the typical worker could expect his or her income to rise at about the same rate that GDP rose. Poverty rates also tended to fall as national income grew.

But over the past 30 years we’ve been witnessing a decoupling of these indicators from the well-being of many Americans. Despite steady long-term growth in national income, we’ve seen no change in poverty rates. In fact the percentage of Americans living with income below the poverty line remains today about exactly what it was four decades ago.

Meanwhile, despite steady long-term economic growth, the typical worker’s income has barely budged over the same 40 year period.

At 7.7 percent, today’s unemployment rate is the lowest it’s been in more than four years. But as an overall indicator of the state of the nation’s economy, this rate too has become a flawed one.

Looking behind last week’s BLS data, we see a yawning gap in unemployment rates by educational levels. Today, high school dropouts are three times more likely to be unemployed than are those with a college degree. Compared with a year ago, there are now two million more citizens with some college experience who have found employment.

This is good news. Yet among those who have never attended college, the number employed has actually shrunk.

Aside from wide variation in terms of who is employed and who isn’t, there is another problem with the unemployment rate. Over the past four years, two million people have dropped out of the labor force. This is part of the explanation behind our declining rate of unemployed citizens: Many workers have simply stopped looking for jobs.

Workers tend to do that when long bouts of unemployment that erode both their skills and their employability leave them discouraged. When they withdraw from the labor force, they are no longer considered as part of the nation’s working population from which unemployment figures are drawn.

Indeed, compared with a decade ago, four more out of every 100 working-age civilians have taken themselves out of the labor force; we now have fewer workers as a share of the potential workforce than we’ve had in more than a generation.

This decline is particularly steep and troubling among citizens without any college; more than half of them are now outside the labor force.

A final problem with our nation’s unemployment rate is that it only measures people who want work but have none. Many more people have work, but are unhappily employed because they are working below their skill level, or have part-time but want full-time work.

Today, one in seven workers fits into one of these categories – a percentage significantly higher than what it was in the past.

The fact of the matter is that macroeconomic measures such as GDP growth and unemployment rates are no longer great measures of national economic performance because so many Americans ride in boats untouched by rising waters.

In the short term, we must pay attention to better, more inclusive measures of economic performance. In the longer run, we need policies that ensure that growth in national income and decreases in the country’s unemployment rates once again herald good news for all.