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Puzzling Trends in the U.S. Labor Market

Can we really count on the labor market statistics we have?

October 20, 2015

Can we really count on the labor market statistics we have?

While there is raging dispute over the numbers game, many experts nevertheless acknowledge that funny things are happening in the U.S. labor force.

For example, in a down economy, one puzzling fact for economists has been that, although the percentage of unemployed Americans has declined, the official rate of employed Americans has also been declining, to the point where the employment rate is at its lowest level since 1983.

How can that be? In normal times, those two measurements are inversely related  –  as the number of employed Americans goes up, the number of unemployed Americans, as well as the unemployment rate should go down.

The two are supposed to countervail each other, like opposite ends of a see-saw. And yet, in this strange new world, both the employment rate and the unemployment rate have been declining. How is that possible?

Growth in number of “discouraged workers”

The short answer is that this is happening because the multitudes of workers dropping out of the labor force and drifting into the grey economy are not counted in official statistics.

And the number of such “discouraged workers” (as they are called) has grown large enough to make it appear like the unemployment rate is declining. Certainly, more and more experts are realizing that the unemployment figures don’t reflect reality.

Even Federal Reserve chair Janet Yellen, whose job is to sound as upbeat as possible about the economy, had to admit in February 2015 before the Senate Banking Committee that the overall jobs picture is “less rosy” than the declining unemployment rate indicates.

That’s because of the surge of “marginally attached and discouraged workers,” as well as “an unusually large number of individuals who are working part-time who would like full-time jobs,” she testified.

Indeed, the U.S. Bureau of Labor Statistics estimates that 12 million fewer Americans are participating in the workforce, compared to before the onset of the Great Recession.

That’s over 8% of the U.S. labor force  –  it’s as if a giant hole in the earth opened up and swallowed these workers, making them disappear from the traditional labor market.

Are they working on the grey market or black market? Or under the table in the gig economy? Apparently nobody knows.

With all the data and technology at our disposal, it seems ridiculous that it has proven so difficult to track and count these labor market trends.

What’s going wrong?

I’m not one to jump on the Ronald Reagan “Government is the problem” bandwagon.

But this is one example in which the Labor Department and Bureau of Labor Statistics really have shirked their responsibility to try and assess the size and growth of this dynamic shift in our economy.

The U.S. Government Accountability Office (GAO) last attempted a study in 2000 through 2005 of contingent work arrangements, finding that the percentage of the U.S. workforce that could be characterized as contingent or on-demand ranged from 5% to 30%, depending on the precise definitions used.

This is quite a wide spread, indicating a lot of confusion  –  a confusion that still remains.

The lack of sufficient quality data itself is telling, since it reveals that policy makers are neither doing nor attempted to do a good job of tracking these changes in the labor force. Shame on them.

I think we are going to find that more and more workers exist simultaneously in multiple worker categories.

An example of this would be a worker who has a regular part-time job (W-2, but with little safety net) and supplements that with being an Uber driver and/or Instacart deliverer (1099 worker, still no safety net) while taking up other mini-gigs, nano-gigs and perhaps a second part-time job (temp, freelancer, etc.).

Many workers already have multiple employers  –  sometimes within a single day! How will that look in the labor statistics? Will we be able to count this complexity using current methods?

Toward a 21st century workforce

The gig economy is just one sub-domain of what is happening more broadly to the workforce including just-in-time scheduling and other disruptions to the labor markets.

It is a result of the gig economy, automation and robots, artificial intelligence and other factors.

Fortune columnist Jeffrey Pfeffer writes “What is not in dispute is that the proportion of contractors, freelancers, and part-time, contingent workers in the U.S. has been increasing and has been for a long time.”

I could not agree more. There are just too many independent sources whose data and research all point in the same direction.

While solid numbers documenting the shifts are hard to come by, it is nevertheless abundantly clear that the old New Deal economy and its safety net is crumbling for millions of U.S. workers.

At a time of stagnant wages and unyielding economic inequality, how do we ensure that millions of contingent workers retain access to the safety net?

Some people, like U.S. Senator Mark Warner and myself, are starting to float proposals on how to deal with this, specifically how to create a “new safety net and social contract for the new economy.”

Others are taking up this challenge. Hopefully, we are at the outset of some changes that will transition the United States to a new economy that works for everybody instead of disproportionately for the wealthy and powerful.


Both the employment and unemployment rate in the US have been declining. How is that possible?

There are multitudes of workers dropping out of the labor force and drifting into the grey economy.

12 million fewer Americans from before the onset of Great Recession are participating in the workforce.

How do we ensure that millions of contingent workers retain access to the safety net?