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America's Unemployment Problem

The unemployment rate has been slowly dropping over the last several years. While this news would seem good the mood in the country does not match the drop in unemployment. Each month the government sends the message that things are better and improving. But in mid-February a Gallop poll showed that unemployment was the biggest problem in America. So where is the disconnect?

There are subtle signs that all is not well. The Department of Labor Statistics, Bureau of Labor Statistics (BLS) reports each month on the number of jobs created by the economy. On the surface job creation sounds like great news. Problem is American workers are dropping out of the workforce in large numbers which masks a growing problem that is reported as economic recovery. As a result those who drop out of the workforce are not counted and causes it to appear that unemployment is holding or even falling.

The BLS reported before the great recession in December 2007 there was an employed labor force of 146 million and at the time there were 7.6 million unemployed causing an unemployment rate of 5%. After the great recession, the BLS reported in December 2013 the employed labor force was 145 million with 10 million unemployed causing an unemployment rate of 6.6%.

So where has the labor force gone? It has been suggested that the baby boomers are retiring which is causing the drop in the labor workforce. But published reports show the majority of baby boomers do not have enough money to retire. Those who have been unemployed dug deep into their retirement nest egg. Clearly, Social Security is not enough to carry boomers. Since 1983 Congress has quietly cut Social Security payments 24% through delayed cost of living and higher taxes. With retirement unlikely many unemployed have given up and are no longer counted.

Those who have been unemployed over 26 weeks or more are known as “long term unemployed”. Historically this group has not been large. Before the great recession in December 2007 there were 1.3 million long term unemployed at the time it represented 17.5% of the overall unemployed in the U.S. Today after the great recession, there are 3.6 million long term unemployed which make up 35.8 percent of the unemployed.

The government has minimized the long term unemployed by declining to extend long term unemployment benefits to those who have been out of a job for longer than 26 weeks. Congress has pointed to the government indicators that say unemployment is dropping and jobs are increasing. Somehow there is a belief that economic growth will fix long term unemployment.

The underemployed or involuntary part time are misrepresented in government reporting. First consider those who want to work full time but are are compelled for economic reasons to work part time. The Bureau of Labor Statistics reports there are 7.3 million involuntary part time workers and person who is working a part time job is counted as fully employed by the BLS helping to keep the unemployment low as the government works to report on a economy at full employment. But counting a part time worker as employed is a problem.

A part time hourly work does not generate enough income to put them about the poverty level for a family of four. Today there are a record 46 million people receiving food stamps. The poverty rate in 2007 was 12.5% and climbed to 15.1% in 2010. In January 2014 the poverty rate was holding at 15%.

For those Americans who are working things are not very rosy. Over the last year the average hourly over the last year has increased by less than 2%. While compared to 2007 when the average hourly pay increased by 4%.

The problem is that jobs have not come back and the average American understands the problem better than the government. Chances are the average American personally knows someone who has lost their job and cannot find another good paying job. The average American worries if they will lose their job next.

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