Your government believes that exhausting your unemployment benefits is a cause for celebration — because you are no longer unemployed!
Huh? Well, there is a slight of hand here. Only working people who are receiving unemployment benefits are counted as “unemployed” in official statistics issued by countries around the world. Thus the actual unemployment rates are much higher than the “official” rates, generally about twice as high. Most governments make it difficult to find the actual rate, and the corporate media does its part by reporting the official rate as if that includes everybody.
Then there is the matter of how much of a given national population is actually engaged in paid employment, another useful number difficult to discover. Finally, we can consider wages, both how fast they might be rising as compared to inflation and whether they are increasing in concert with increases in productivity.
To cut to the chase, things ain’t so hot. But you already knew that, didn’t you?
Let’s start our global survey with the United States, where, contrary to expectations, the real unemployment figure is easier to discover than most other places. Perhaps the Trump régime hasn’t gotten around to suppressing it, busy as it is hiding scientific evidence about global warming, pollution and other inconvenient facts. The official U.S. unemployment rate for May was reported as 3.8 percent, the lowest it has been in several years, and less than half of what it was during the post-2008 economic collapse. Predictably, the Trump administration was quick to take credit, although the trend of falling employment has carried on for eight years now.
Nonetheless, you might have noticed that happy days aren’t exactly here again. The real U.S. unemployment figure — all who are counted as unemployed in the “official” rate, plus discouraged workers, the total of those employed part time but not able to secure full-time work and all persons marginally attached to the labor force (those who wish to work but have given up) — is 7.6 percent. (This is the “U-6” rate.) That total, too, is less than half of its 2010 peak and is the lowest in several years. But this still doesn’t mean the number of people actually working is increasing.
Fewer people at work and they are making less
A better indication of how many people have found work is the “civilian labor force participation rate.” By this measure, which includes all people age 16 or older who are not in prison or a mental institution, only 62.7 percent of the potential U.S. workforce was actually in the workforce in May, and that was slightly lower than the previous month. This is just about equal to the lowest this statistic has been since the breakdown of Keynesianism in the 1970s, and down significantly from the peak of 67.3 percent in May 2000. You have to go back to the mid-1970s to find a time when U.S. labor participation was lower. This number was consistently lower in the 1950s and 1960s, but in those days one income was sufficient to support a family. Now everybody works and still can’t make ends meet.
And that brings us to the topic of wages. After reaching a peak of 52 percent in 1969, the percentage of the U.S. gross domestic product going to wages has fallen to 43 percent, according to research by the St. Louis branch of the Federal Reserve. The amount of GDP going to wages during the past five years has been the lowest it has been since 1929, according to a New York Times report. And within the inequality of wages that don’t keep up with inflation or productivity gains, the worse-off are doing worse.
The Economic Policy Institute noted, “From 2000 to 2017, wage growth was strongest for the highest-wage workers, continuing the trend in rising wage inequality over the last four decades.” The strongest wage growth was for those in the top 10 percent of earnings, which skewed the results sufficiently that the median wage increase for 2017 was a paltry 0.2 percent, the EPI reports. Inflation may have been low, but it wasn’t as low as that — the typical U.S. worker thus suffered a de facto wage decrease last year.
What this sobering news tells us is that good-paying jobs are hard to come by. An EPI researcher, Elise Gould, wrote:
“Slow wage growth tells us that employers continue to hold the cards, and don’t have to offer higher wages to attract workers. In other words, workers have very little leverage to bid up their wages. Slow wage growth is evidence that employers and workers both know there are still workers waiting in the wings ready to take a job, even if they aren’t actively looking for one.”
The true unemployment rates in Canada and Europe
We find similar patterns elsewhere. In Canada, the official unemployment rate held at 5.8 percent in April, the lowest it has been since 1976, although there was a slight decrease in the number of people working in March, mainly due to job losses in wholesale and retail trade and construction. What is the actual unemployment rate? According to Statistics Canada’s R8 figure, it is 8.6 percent. The R8 counts counts people in part-time work, including those wanting full-time work, as “full-time equivalents,” thus underestimating the number of under-employed.
At the end of 2012, the R8 figure was 9.4 percent, but an analysis published by The Globe and Mail analyzing unemployment estimated the true unemployment rate for that year to be 14.2 percent. If the current statistical miscalculation is proportionate, then the true Canadian unemployment rate currently must be north of 13 percent. “[T]he narrow scope of the Canadian measure significantly understates labour underutilization,” the Globe and Mail analysis concludes.
Similar to its southern neighbor, Canada’s labor force participation rate has steadily declined, falling to 65.4 percent in April 2018 from a high of 67.7 percent in 2003.
The most recent official unemployment figure in Britain is 4.2 percent. The true figure is rather higher. How much higher is difficult to determine, but a September 2012 report by Sheffield Hallam University found that the total number of unemployed in Britain was more than 3.4 million in April of that year although the Labour Force Survey, from which official unemployment statistics are derived, reported only 2.5 million. So if we assume a similar ratio, then the true rate of unemployment across the United Kingdom is about 5.7 percent.
The European Union reported an official unemployment rate of 7.1 percent (with Greece having the highest total at 20.8 percent). The EU’s Eurostat service doesn’t provide an equivalent of a U.S. U-6 or a Canadian R8, but does separately provide totals for under-employed part-time workers and “potential additional labour force”; adding these two would effectively double the true EU rate of unemployed and so the actual figure must be about 14 percent.
Australia’s official seasonally adjusted unemployment rate is 5.6 percent, according to the country’s Bureau of Statistics. The statistic that would provide a more realistic measure, the “extended labour force under-utilisation” figure, seems to be well hidden. The most recent figure that could be found was for February 2017, when the rate was given as 15.4 percent. As the “official” unemployment rate at the time was 5.8 percent, it is reasonable to conclude that the real Australian unemployment rate is currently above 15 percent.
Mirroring the pattern in North America, global employment is on the decline. The International Labour Organization estimated the world labor force participation rate as 61.9 percent for 2017, a steadily decline from the 65.7 percent estimated for 1990.
Stagnant wages despite productivity growth around the world
Concomitant with the high numbers of people worldwide who don’t have proper employment is the stagnation of wages. Across North America and Europe, productivity is rising much faster than wages. A 2017 study found that across those regions median real wage growth since the mid-1980s has not kept pace with labor productivity growth.
Not surprisingly, the United States had the largest gap between wages and productivity. Germany was second in this category, perhaps not surprising, either, because German workers have suffered a long period of wage cuts (adjusted for inflation) since the Social Democratic Party codified austerity by instituting Gerhard Schröder’s “Agenda 2010” legislation. Despite this disparity, the U.S. Federal Reserve issued a report in 2015 declaring the problem of economic weakness is due to wages not falling enough. Yes, the Fed believes your wages are too high.
The lag of wages as compared to rising productivity is an ongoing global phenomenon. A separate statistical analysis from earlier this decade also demonstrated this pattern for working people in Canada, the United States, Britain, France, Germany, Italy and Japan. Workers in both Canada and the United States take home hundreds of dollars less per week than they would if wages had kept up with productivity gains.
In an era of runaway corporate globalization, there is ever more precarity. On a global scale, having regular employment is actually unusual. Using International Labour Organization figures as a starting point, John Bellamy Foster and Robert McChesney calculate that the “global reserve army of labor” — workers who are underemployed, unemployed or “vulnerably employed” (including informal workers) — totals 2.4 billion. In contrast, the world’s wage workers total 1.4 billion. Writing in their book The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China, they write:
“It is the existence of a reserve army that in its maximum extent is more than 70 percent larger than the active labor army that serves to restrain wages globally, and particularly in poorer countries. Indeed, most of this reserve army is located in the underdeveloped countries of the world, though its growth can be seen today in the rich countries as well.” [page 145]
Having conquered virtually every corner of the globe and with nowhere left to expand into nor new markets to take, capitalists will continue to cut costs — in the first place, wages and benefits — in their ceaseless scrambles to sustain their accustomed profits. There is no reform that can permanently alter this relentless internal logic of capitalism. Although she was premature, Rosa Luxemburg’s forecast of socialism or barbarism draws nearer.
[…] via Hiding the real number of unemployed […]
One of the problems I see in the labor pool is the high costs associated with education or training skilled jobs require. They exist apparently in high tech and medical fields. This requires a higher degree of debt just to enter this labor market. The numbers skewed toward the lowest wage jobs, usually in some service industry. That’s how I survived in the food service industry. (I was a professional cook.) But I didn’t have a family to support which would have been hard at my wage level. I like many Americans was one or two paychecks away from disaster.
I absolutely don’t understand how all the unreported unemployed survive.
And we haven’t brought up the topic of obscenely high rents and housing prices, making low and stagnant wages even more difficult to live on. In my previous job, I once endured a three-year-long wage freeze. Needless to say, there were no rent freezes in that period.
Thank you for the cogent review, absent from mainstream coverage of “gains.” Moreover, it seems that the accumulated financial wealth that results from stagnant/declining wages is increasingly detached from its roots in productive enterprises.
I suppose I could respond “yes and no” on the question of financialization and increasing detachment from production. The massive amounts of money diverted to financial speculators — Wall Street, the City and elsewhere — are a sharing of surplus value, not necessarily willingly done. But it is certainly true that activity on financial markets greatly exceed any rational bounds — I once tried to quantify the composite size of stock, bond and forex markets and concluded that 11 days of trading on those markets equals in value the size of the entire world gross domestic product.
Industrialists and financiers ultimately have a symbiotic relationship. Financiers need profitable enterprises to produce the profits that are skimmed off and speculated on, and industrialists benefit from the pressure that financiers bring to bear, forcing up stock prices that they profit from. There is a considerable overlap between the two as well, financiers often buy industrial companies and other makers of tangible products (even if to siphon the money out of them and leave them an emptied husk) and industrial companies often develop their own finance arms. GE Capital was once one of the most profitable parts of General Electric, for example.
There is so much financial speculation because the profits generated and the wealth flowing to those who reap the profits have far more money than they can spend or invest. So this excess is diverted into speculations. At time, speculation is more profitable than production, so that exacerbates the tendency of capital to chase higher returns through speculation. So you are completely correct that financialization has gone beyond any rationality at the same time that accumulated financial wealth is not necessarily detached from productive enterprises.
Real estate speculation?
Which brings us to gentrification, another product of inequality and the speculation that worsens from it, and what happens when housing becomes a commodity instead of a place to live.
Great job Pete ! My son is working at Barnes & Noble. Which used to be a decent retail job. They are going out of business & are now firing all full time workers, hiring only temp with no set schedules or hours. When the state mandated wage increases occurred under the $15 an hr movement they simply cut the number of hours each worker worked so they didn’t make any more and hired fewer new temp workers to make up the difference so now all workers are working twice as hard for the same or less pay. This is causing workers to quit so company doesn’t have to pay for unemployment or other severance benefits. Ugly.
Only problem I have with Luxembourg is that her excellent analysis focuses on the exchange part of the problem that capitalism brought us & not enough on the production part of the cycle – we can’t work our way out of this by creating more wage labor jobs but getting out of capitalist labor all together by taking over private production or crating our own new jobs (coops?) in noncapitalist structure.
What Luxemburg did was demonstrate the necessity of capitalism to continually expand because employees are paid only a fraction of the value of what they produce and capitalists can’t buy all the remaining production and thus must continually seek out new markets to be able to sell what they produce. The vast opportunities to expand after World War II, both in terms of new markets and in meeting heightened demand in places like Europe and North America because of destroyed productive capacity from the war and fulfilling pent-up demand from the Great Depression enabled Keynesianism to flourish for a couple of decades.
There can be no return to mid-20th century Keynesianism; the conditions don’t exist anymore. We’ve arrived at the point where capitalism can no longer find ways to escape its contradictions (thus Luxemburg’s famous formula) and therefore the only way forward for humanity is to do just what you suggest.
SD, thanks for the explanation of the standard card trick of the government’s unemployment rate numbers. Tubularsock uses a different metrics to calculate the unemployment rate however. And it has proven most reliable. It is called the Tubularsock Jobless Count or TJC and it works like this.
As Tubularsock goes out into his city he counts each homeless person that he has to stop over on the sidewalk to get to the local bar for his shot of Wild Turkey neat for breakfast.
The total of that number is then divided by 3 and then multiplied by 7. The reason for these calculations are due to the fact that when dealing with complex economic issues one has to use numbers somewhere to give the impression that a viable formula exists.
Once that it has been established that the 3/7 formula exists then an Economist can provide an answer.
Which only goes to show you that “. . . all people age 16 or older who are not in prison or a mental institution” doesn’t actually exist because WE ARE ALL in a prison-mental-institution and we believe we are free.
Perhaps one day we’ll stop believing …
Very good piece, but one common misconception when you write :
“Only working people who are receiving unemployment benefits are counted as “unemployed” in official statistics issued by countries around the world. ”
While each country does have a different method for calculating the unemployed, in the u.s. the unemployment rate release on the first friday of every month is derived from a Labor dept. monthly survey of 60,000 households, which no doubt underestimates the number of jobless by not including those who have stopped looking for work (“discouraged workers”) those working part time because they can’t find full time employment and other categories.
the labor department does include these numbers in others unemployment rates that get little attention by the media offer other measures besides
your main point is well-taken : “Thus the actual unemployment rates are much higher than the “official” rates, generally about twice as high. Most governments make it difficult to find the actual rate, and the corporate media does its part by reporting the official rate as if that includes everybody.”
The specific methodology of counting the unemployed surely varies from country to country as you suggest, but all that I’ve sampled use the same definition of unemployment, which I believe is derived from the International Labour Organisation. As to why this particular definition came about I do not know, although I suppose that it understates the true extent of unemployment is likely not a coincidence. That most countries make it very difficult to find the real unemployment rate would seem to add to the theory that there is not a coincidence here.
The corporate media could help matters by publicizing the true (or at least more realistic) statistic (such as the U-6 of the United States) but all seem content to take the handout from their governments reporting the “official” statistic and leave it at that. In the spirit of Occam’s razor this might be simply because the average journalist, no specialist in economic matters, probably has no idea there is a more accurate unemployment rate or even that rates other than the “official” exist. Perhaps compounding this situation is that a typical newspaper (at least in North America) has a business section that faithfully reproduces corporate and neoliberal ideology as incontestable truth, such as celebrating mass layoffs as wonderful because the stock price of the company sacking people will rise. Do any have a labor columnist, looking at these questions from a working person’s standpoint? None that I know of.
But, circling back to the previous thought, my 18 years as a professional journalist earlier in life taught me well that one can never really over-estimate the laziness of most journalists (there are always exceptions, of course). Why do extra work when the government just handed you a press release that your colleagues aren’t going to critique either.
But isn’t the “true” unemployment rate 21.5%? That is, if the U-6 rate was still calculated the way it was up to the 1990s. http://www.shadowstats.com/alternate_data/unemployment-charts
I had an informative argument with some people years ago about this. Capitalist apologists insist that it is ILLEGITIMATE to use unemployment figures as evidence of poor policy or flaws in capitalism….hence they always select the lowest possible unemployment number and insist that any alternate calculation is fraudulent (even if one used by the U.S. government at one time). To do so would make one guilty of the great sin of questioning capitalist ideology.
Greetings, Shadowman. Given the large discrepancies among the wider government measures of unemployment, such as the U-6 of the U.S., the R8 of Canada or the “extended labour force under-utilisation” of Australia, it would seem that there is no universal definition of the true unemployment rate as opposed to the standardized way all countries report their “official” (significantly under-stated) rates.
In your linked graphic, you state that the U-6 includes short-term discouraged workers but not long-term discouraged workers. How is the difference between these two categories defined?
The Shadowstats site is run by John Williams. He states that his methodology is to *mostly* follow the BLS’ pre-1994 (i.e., pre-Clinton) U-6 methodology, which did not include a one-year cap. In other words, the pre-1994 BLS methodology counted someone as a discouraged worker if he or she was willing, able and ready to work but had given up looking because there were no jobs to be had, regardless of how long that status continued, whereas the Clinton administration placed a one-year cap on that number and anyone who had been looking for a job unsuccessfully for more than one year was suddenly uncounted (and therefore no longer considered unemployed). The short answer to your question is that the Shadowstats site claims to remove the one-year cap on the U-6 number that was instituted in 1994. Though I will readily acknowledge that the Shadowstats figures expose themselves to criticism because the precise methodology is not disclosed, though it should be.
More explanation found here:
https://www.themaven.net/economonitor/emerging-markets/deconstructing-shadowstats-part-2-in-search-of-an-alternative-measure-of-unemployment-1jGh1VQ7MEOtFIbiiKzS4Q (criticism of Williams’ methodology)
I concur with you that there is no one universal and unambiguous way to calculate these figures, though I think that Williams does have a valid point that the one-year cap in the post-1994 U-6 number is dubious. One the other hand, if today someone indefinitely holds out for a job has a telegraph operator, one might start to question when, if ever, that person qualifies as discouraged or unemployed — though such difficulties are I think sometimes used as a distraction from a focus on methodologies.
Very interesting. I will have to do further research on this, as I had not been aware there were limitations on the U-6 rate. The Economic Populist report you linked to provides this confirmation:
So the actual true unemployment rate must be higher than the U-6 statistic. How much higher? Apparently much less than the numbers provided by ShadowStats. I find the critique offered in the last of the links you provided persuasive. The critique, by Ed Dolan, concludes with this passage:
So even the U-6 underestimates the U.S. unemployment rate, just as the R8 underestimates the Canadian rate, even if we agree with the critique of the ShadowStats calculations.
Here’s an interesting follow-on debate between Jack Rasmus and Doug Henwood about employment statistics:
Rasmus makes some good points (I generally find Henwood to be unreliable), though there is still room to quibble with Rasmus — there is reason to wonder about the best way to fairly aggregate large businesses (which may have tens of thousands of employees) and small businesses (which may have 1-2 only), not to mention somewhat rampant employee misclassification in the era of the “fissured workplace”.
I’ve been following the Rasmus/Henwood debate and I am in agreement that Jack Rasmus has much the better argument. And that Henwood resorts to personal invective also counts against him — if he is so sure of his facts then he need not make gratuitous insults.
Excellent analysis as usual. So many people don’t believe me when I tell them that it is not in employers’ interests to have a low unemployment rate because then they would have to pay higher wages/salaries and provide benefits, vacation and sick leave and all that in order to attract employees. Because people are so easily persuaded by the employers’ mantra that I would describe them as gullible. Please keep up the good work!
useful article, but it is not true that the gov. counts you as unemployed only if you are getting unemployment benefits.
Actually, governments around the world count only people who are getting unemployment benefits as unemployed. It is the standard definition as defined by the International Labour Organization. The ILO definition: without work, that is, were not in paid employment or self employment during the reference period; currently available for work, that is, were available for paid employment or self-employment during the reference period; and seeking work, that is, had taken specific steps in a specified recent period to seek paid employment or self-employment.
Again, there are other measures as noted that include others out of work but those are not the “official” measures.