Way U.S. Counts Jobless May Be Outdated

A top U.S. economic official, speaking privately at a recent luncheon, was worried by an eerie silence. Amid evidence that the U.S. economy is slowing, unemployment has remained steady for almost a year, said the official. “That unemployment rate may take a leap upward one of these months and give us all a shock.�

Yet the latest figures released last Friday belied the official’s fears. Unemployment remained at 6.6 million, 5.3% of the labor force, while hiring rose dramatically--372,000 new jobs created in February to bring total employment to 118 million.

True, unemployment figures can be deceptive; economists call them lagging indicators. “One of the last things companies do when the economy turns down is get rid of employees,� says economist Pierre Rinfret, of Rinfret Associates. In 1981 unemployment figures remained fairly low even as the economy slid into recession. But then they leaped to 9.5% in 1982 and stayed at that high level through 1983 despite economic recovery.

Today there may be impending unemployment in industries such as aerospace-defense. But nothing is happening yet, says Patricia Straugh of Data Resources Inc., the economic forecasting firm. “Defense companies aren’t laying off because they’re working on long-term contracts, and waiting for Congress to decide which weapons programs to cut.� Those congressional decisions could come in a month or two, she explains. “But even after that, layoffs may not be severe. The companies are trying to keep their employees together and look around for other work.�

So what’s the story--will there be a sharp rise in joblessness this year?

Probably not. The truth is, the national unemployment figure is out of date because the economy has changed so much in the last decade or so--for reasons both positive and negative.

In the positive sense, “we don’t have a national economy anymore,� suggests Daniel Mitchell, head of the Institute of Industrial Relations at UCLA.

Regional differences took over in the 1980s, when the Northeast prospered while the Southwest and Midwest suffered. Today, to some extent, the wheel has turned. The Northeast is slowing, and New Englanders are worried--even though the region’s overall unemployment is only 5%.

In Texas, meanwhile, the unemployment rate has gone down to 6%, yet everybody is positive because things are turning up after a devastating decade. And the Midwest, an area that was battered by competition from imports for much of the 1980s, is now doing a lot better taking advantage of export markets for machinery and for grain.

But the Midwest is not doing well because big companies are firing their furnaces. “It’s no longer an economy of big companies, big unions and government wage guidelines,� says UCLA’s Mitchell.

Instead the pattern is one of diverse, smaller firms--even smaller towns. David Birch, the industrial consultant who noted almost a decade ago that big companies were eliminating jobs and smaller firms creating them, is now looking at “boom neighborhoods�--local areas of intense economic activity, whether in the heart of major cities such as Los Angeles and New York or in their suburbs. In Melville, on New York’s Long Island, for example, a company of four full-time employees named Qosina makes medical and cosmetic packages for customers in England, Germany and the Netherlands.

But regional differences explain only one aspect of the new economy, says Kevin Murphy, of the University of Chicago School of Business. Education has become the big divider, with educated people enjoying abundant opportunities and high school dropouts falling out of the active labor force altogether.

The unemployment and employment figures count only those in the active work force--those who are working or looking for work. Where 66.8% of adult Americans are in that work force, participation by the less educated poor is often below 50%.

The upshot is the unemployment figures don’t tell the full story. Some unemployed people keep looking but have little prospect of finding jobs in today’s economy because they lack the skills. Others have given up looking.

“So the unemployment figure remains steady because many of those who are counted cannot work, and many others are no longer counted,� says Murphy.

The point, of course, is that to see what’s really happening one must look beyond the figures. In that respect, the short-term outlook is a tossup. Yes, unemployment could rise if profits decline. Yet on the other hand, new job figures could continue to look dramatic--swelled by auto workers returning from layoff and the government hiring 400,000 temporaries to take the national census in April.

But long term, over the decade of the ‘90s, there’s no doubt: The U.S. will have a labor-short economy, with fewer than 20 million new workers entering the labor force, compared to almost 26 million in the last 10 years. That will mean opportunity and high pay for skilled people, as is already evident in $28,000-a-year starting pay for accountants and $35,500 beginning salary for nurses in big-city hospitals.

Lest we forget, however, there is also a challenge--to bring the 6.6 million and more unemployed into full participation in the U.S. economy through education and job-training. A labor-short nation cannot afford to do less, on strict economic grounds--not to mention those of social justice.