Despite lowest unemployment rate in 50 years, many remain discouraged

It’s the best time in decades to find a job – or so the employment figures suggest. But look closer, and you might see a different story.

According to data from the Labor Department. In the aftermath of the December 2010 recession, this ratio climbed to 10 individuals. It has since averaged around seven.

This is despite the national unemployment rate plunging to 3.5%, the lowest in 50 years. Employers added positions for nearly nine straight years, a record, and they continued that streak in the Labor Department’s September jobs report. It also goes against popular narratives that companies are struggling to find enough workers to fill vacancies.

“The recession has changed something about the job market,” says Julia Pollak, labor economist at ZipRecruiter, an online job market. The ratio of discouraged workers to unemployed “has remained almost flat, and that’s about 95,000 more discouraged workers than we should have, given the unemployment rate.”

The data illustrates some broader problems, economists say, including tepid wage gains and employers who have been slow to increase hours. They also say that the unemployment rate might not be as useful an indicator for judging the strength of the labor market.

“The unemployment rate doesn’t tell you much about the job market anymore,” says David Blanchflower, professor of economics at Dartmouth University. “People have not understood that the job market is not as strong as we think.”

How many workers are considered discouraged

About 321,000 people in September said they hadn’t looked for a job in the past four weeks because they didn’t think there was one for them, according to the Department of Labor’s “discouraged workers” gauge in the monthly jobs report.

The data, however, isn’t seasonally adjusted, so it’s more useful to look at statistics on a six-month or one-year average, Pollak says. Over the past year, there have been approximately 412,000 discouraged workers, bringing the ratio to 6.8 people per 100 unemployed.

It’s not like there hasn’t been an improvement. In 2010, in the immediate aftermath of the Great Recession, the average monthly level of discouraged workers reached 1.2 million people, the highest level on record. The total level has since fallen to its pre-crisis level, but has yet to reach the lows reached in the early 2000s.

“It’s a pretty noisy series,” says Pollak, but the overall level is “more than we expected.”

Why workers are still discouraged in such a strong job market

There are a number of reasons why this is so, with low wage gains at the top. Workers may be discouraged from finding sustainable employment, says Blanchflower, whose February book Not Working: Where Have All the Good Jobs Gone? explored the phenomenon.

Average hourly wages rose 2.9% on an annual basis, the lowest in more than a year, according to the Labor Department’s September jobs report. It fell from its peak in February, when profits rose 3.4% from a year earlier.

[READ: We’re in the longest economic expansion in US history — here’s what made it unlike any other]

Economists wonder why wages have not increased further, especially since the unemployment rate is so low. Typical economic logic suggests that employers raise workers’ wages to attract more workers in a tight labor market.

Another factor could be that individuals are discouraged by the number of hours they will get in the positions they are applying for, says Blanchflower. Although total hours worked have mostly rebounded from recession lows, 4.4 million Americans are still working part-time for economic reasons.

“The labor market doesn’t provide enough good jobs and enough hours,” says Blanchflower. “That’s basically what we’ve seen and why people are discouraged. They cannot find the decent, well-paying jobs that their parents and grandparents had. Even if you get a job, it’s low pay and you can’t even work enough hours.

Other parts of the country have been left behind. Job creation outside major urban centres, for example, has been slow to regain its pre-recession pace.

[READ: Experts vs. Americans: State of the U.S. economy]

Discouraged workers are also difficult to track. Some people, for example, might be in school right now because they’re discouraged by their job prospects, but they might not be counted in the gauge, says Blanchflower.

“Some are students, some are housewives, some are retired, and some are permanently disabled,” says Blanchflower. “The question is, who are these discouraged workers?”

It’s hard just to look at the unemployment rate

All of this shows that the broader unemployment rate is no longer “an adequate measure,” says Blanchard. “You have to widen it.”

Discouraged workers are considered “marginally attached” to the labor force. Technically, they are not counted as unemployed because they have not looked for work in the last four weeks.

Other measures of unemployment track these discouraged workers, as well as those who are not working but considered the peak age (or between 25 and 54) for work. These broader measures have not reached the same impressive lows as the national unemployment rate.

The broadest measure is the U6 rate, which includes the total number of unemployed, plus all marginally attached workers, plus the total number of part-time employees for economic reasons. This rate is currently at 6.9%, the lowest since December 2000.

“It’s still good,” says Steve DeLoach, an economics professor at Elon University who has studied the impact of business terms on individuals’ job search behavior. “That’s roughly consistent with where it bottomed out in the early 2000s before the 2001 recession. That’s a bit less than before the Great Recession. But one way to look at that is that unemployment is not as low as we think.

Another measure tracks both the total number of unemployed and discouraged workers, also known as the U4 rate. The numbers showed immense improvement, reaching as high as 10.5% in April 2010. But it took nearly seven years to return to pre-recession lows and it is now at 3.7%.

Why You’ll Always Have Discouraged Workers

But even in a historically strong labor market, there will always be discouraged workers. It’s part of the structural barriers to unemployment, DeLoach says.

[READ: Scary percentage of Americans financially unprepared for recession]

“There’s a reason we can’t get to zero unemployment,” DeLoach said. “There’s a group of people, even in a very strong economy, who don’t have the right skills for the jobs being advertised.”

Sometimes it’s more than just skills. Individuals may not have the financial means to move to where the majority of jobs are.

“There may not be a lot of jobs created in their area, and they don’t have the ability to move to the big city,” DeLoach says. “It’s a matter of mobility.

If you’re feeling discouraged about your job prospects, it can be helpful to further your education and training to build your skills, says DeLoach. People who pursue a college education generally earn more money and have more job prospects than their counterparts who have not furthered their education or obtained a high school diploma.

“Generationally, it comes down to skills and education,” says DeLoach. “These are pieces of the puzzle, and it takes a lot more to fit.”

Learn more:

About Andrew Miller

Check Also

Verizon to buy prepaid phone vendor Tracfone for up to $6.9 billion

Estimated reading time: 1-2 minutes This news archive is available for your personal, non-commercial use …