Hidden Unemployment

Since the 1970s, labor force withdrawal and longer jobless spells have been gaining ground, steadily and ominously, so that even the BLS “alternative unemployment measures,” let alone the official one, increasingly understate true unemployment in the U.S. 

Jobless rates fell sharply in the 1990s because more prime-age males (25 to 54 years old) stopped looking for work and thus were not counted as unemployed and gave reasons other than job-search discouragement for their withdrawal from the labor force (personal reasons, keeping house, early retirement, disability, self-employment). “Over the 1990s, even as unemployment was falling, time spent out of the labor force was rising... [and] was so large that total joblessness—which combines the unemployed with those who have withdrawn from the labor force—was as high at the business cycle peak in 2000 as it had been at the previous cyclical peak of 1989, even though the [official] unemployment rate was roughly 2 percentage points lower. In terms of total joblessness, the often-praised boom of the 1990s really represented little in the way of employment progress for American males” (C. Juhn, K. Murphy, and R. Topel, “Current Unemployment, Historically Con- templated,” Brookings Papers on Economic Activity, 1:2002). 

Participation in the labor force by prime working-age males, who still command the highest wages for any given job, has been drifting downward for more than 40 years. In 1972 a noted labor economist regarded the labor force drop-out by males, both black and white, as “mysterious.” Three-fifths of it, he observed, could be attributed to growth in numbers of men “unable to work...reasons for this apparent increase in chronic disability are not known” (T.A. Finegan, “Labor Force Growth and the Return to Full Employment,” Monthly Labor Review, February 1972). It is all the more “mysterious” in that it flies in the face of the increasing demand for jobs—and take-home pay—that has made the U.S. the only high-income nation in which time spent working has been on the rise since 1970. The average U.S. worker now spends more time on the job than she or he did in 1950. 

Male participation in the labor force, it would appear, has been declining not as a result of genuine physical or mental illness, or free choice of more leisure instead of work, but because of chronic job scarcity and lack of decent employment opportunities, particularly in an era of wage compression at home and shifting of factory jobs to lower-cost nations overseas. 

This is the state of the labor market in which the number of workers receiving disability benefits grew from 1.5 million in 1970 to 5.0 million in 2000, more than twice as fast as the labor force during those years. (The increases were 4.1 percent per year and 1.8 percent respectively.) When Congress began to loosen the standards for disability payments in the late 1980s, many people who normally might have been counted as unemployed started moving into the disability system in record numbers. Nearly all the increase came from hard-to-verify disabilities, like back pain and mental disorders. From 1990 through 2002, the disabled worker total climbed at 5.2 percent per year, while the labor force increased only 1.0 percent per year. 

Another sign of “hidden unemployment” is the rapid expansion in numbers of people who declare themselves “self-employed”—9.2 million by November 2003, accounting for 6.6 percent of all people who say they are working and are officially counted as employed. Some of them—perhaps many—are out of work but will not admit it to the Household Survey enumerator who collects the employment data each month. Self-employed workers increased by 156,000 in November; this was a primary reason why the official unemployment rate dropped from 6.0 percent in Oct- ober to 5.9 percent in November. 

Incarceration is another comparatively large source of hidden unemployment in this country. In 2002, the number of people im- prisoned reached 2.0 million. We’re number one. The U.S. has 702 prisoners per 100,000 of population, well ahead of second-place Russia (665 per 100,000); the U.S. rate is three times higher than that of Iran, four times that of Poland, five times that of Tanzania, seven times Germany’s. Adding jailed working-age men to the official U.S. unemployment rate would increase it by as much as 0.3 percent. 

In a historical survey of unemployment, Wall Street Journal columnist Cynthia Crossen wrote (Dec. 3, 2003) that “Since the late 19th century, America has never been fully employed except during the two world wars.” In fact the record shows that unemployment may never have been as low as 2 to 3 percent, which would represent genuine full employment, except near the end of World War II (Du Boff, “Unemployment in the United States,” Monthly Review , November 1977). Not even the three longest economic expansions in our history—those of the 1960s, 1980s, and 1990s—have been able to drive the U.S. economy to full employment. In the new era of globalized technologies and production, jobs are becoming even harder to get and hang on to.  

Richard DuBoff is an author and professor of economics at Bryn Mawr College.