Unemployed? This Might Explain Why

Many people struggle to comprehend gross domestic product, seasonally adjusted factory orders, and LIBOR. But the unemployment rate makes sense to everybody. It's simple: when you want a job but can't find one, you're a member of the unemployed -- a nice, clean, percentage number reported monthly by the Bureau of Labor Statistics.

But the reported number can be misleading if you're using it to compare it to your personal circumstances. It's the average unemployment rate in a nation where inequality, for better or worse, runs rampant.

For most of the past year, the reported unemployment rate has fluctuated between 9%-10%. But broken out by different demographics, you'll see how skewed the average is:

*12-month average ending Sep. '09.
Source: Bureau of Labor Statistics, New York Times.

For the young and uneducated, this truly is a depression. For the older and the educated, it's not so bad.

Breaking these numbers up by sex shows an even larger gulf. For women age 45 and over with a college degree, the unemployment rate was 4.1%. For males aged 15-24 with no high school degree, it's 28.4%. For some demographic groups, today's "terrible economy" is more fertile than it was during the boom years for other groups. There's a faceful of relativity for you.

Selling yourself to The Man
The causes of this are fairly obvious. Adam Smith's framework for economic prosperity is based on the specialization of labor, and young, uneducated workers typically aren't specialized in much of anything. More importantly, they're easier and cheaper to rehire and retrain, which makes them easier to let go when tough times hit. You can probably hire a new dishwasher by the end of the day, and he'll be just as good as the guy you let go last month. But if you need a software engineer with a specialization in aerospace technology, that's another story. Once you hire him, you're going to want to keep him around even when a recession makes doing so painful.

There are two other main reasons young, uneducated workers suffer the brunt of unemployment:

1) The death of manufacturing
For decades, the economy has been shifting away from manufacturing toward information technology, health care, and financial services. In 1947, manufacturing accounted for 26% of GDP; in 2009, it was just 11%. Over the same period, financial services grew from 10% to 21%.

That's shifted the employment demand toward educated workers. (While financial-sector workers are typically an educated bunch, the sad truth is they can inflict more damage and fail to add as much value as the manufacturing sector, where education is generally less relevant.) This isn't only true for manufacturing, but most industries that rely on fairly low-cost, uneducated labor. Think about it: Citigroup (NYSE: C) and Oracle (Nasdaq: ORCL) are hiring, while retail is still a holy mess.

Manufacturing by nature is also more susceptible to being smacked by recessions. As a 2004 report by the Department of Commerce found, "Of the eight recessions since 1950, real GDP has declined, on average, about 2 percent, whereas manufacturing output has declined 7 percent."

2) The collapse of the building industry
This recession's impetus was the collapse of the real estate bubble. That's wreaked particular havoc on those whose livelihood touched the building industry. And from construction workers at KB Homes (NYSE: KBH) to cashiers at Home Depot (NYSE: HD), this industry is dominated by a relatively young and uneducated workforce. (There are of course exceptions: architects, engineers, etc.) It's no coincidence that Nevada -- ground zero for housing armageddon -- now has the nation's highest unemployment rate.

Saved by the bell
The good news is that most people aren't oblivious to this reality. Demand for higher education has gone through the roof since the recession began. Freshman college enrollment grew by 6% in 2008, the largest jump in 40 years. For-profit education companies like Apollo Group (Nasdaq: APOL) and Career Education (Nasdaq: CECO) have been remarkably successful over the past decade as enrollment surged. If you're young and jobless, increasing your marketable skills through education is probably the single best way to defeat unemployment.

On that note, Bob Wise, president of the Alliance for Excellent Education, gets the last word: "[T]he best economic stimulus is a high school diploma."

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.