The term labor underutilization has been bandied about quite a bit lately, as analysts look past the official unemployment rate of 6.1%, and delve deeper into the workings of the job market. In a recent press conference, the Federal Reserve referred to the concept as part of the reason for its reluctance to raise interest rates in the near future, noting the large numbers of persons still -- unsuccessfully -- seeking full-time work.
While there's no doubt that the employment picture has brightened considerably since the end of the Great Recession, one jobs metric remains uncomfortably high: the U-6 rate, which combines five measures of employment stability.
Taking the pulse of working America
The U-6 is the most comprehensive look at the state of working America. At the current 12% of the labor force, this measurement has improved greatly since the darkest days of the recession, when it topped 17%. The U-6 ratio combines the official jobless rate with:
- part-time workers who want full-time work
- those who lost their permanent or temporary jobs
- people unemployed for 15 weeks or more
- discouraged workers
Not surprisingly, this measure usually rises as recessions get underway, and recedes slowly as the economy heals. In previous recessions, this metric has stayed above 10% for months following an economic recovery. Since the financial crisis, however, things seem to have changed: June marked the six-year anniversary of the U-6 rate remaining in the double digits. Compare that with the 2001 recession, when it took a little more than one year for the U-6 ratio to permanently drop below 10%.
Things are much worse this time
Clearly, the financial crisis did some severe damage to the job market. The labor force participation rate continues to shrink to historic lows, while more than 7 million persons labor in part-time jobs when they want full-time work.
The American male, slowly dropping out of the workforce since the 1940s, has stepped up his disappearing act during the past six years. According to a recent study by Rutgers University, more than 10 million men in their prime working years are currently outside of the labor force. Meanwhile, an ever-expanding shadow economy is absorbing many of these missing workers, at least some of whom may never venture back into the traditional workforce.
A permanently disabled job market
Will the employment situation ever get back to where it was previous to the Great Recession? It certainly doesn't seem likely. In the past 30 years, for example, there has never been such a persistently elevated number of persons working part-time who wanted full-time employment. Simply put, it seems like there aren't enough full-time jobs for all who want them.
Every month, the Hamilton Project at the Brookings Institution takes a stab at what a full jobs recovery might look like, given specific levels of job creation. Noting that 5.6 million new jobs were still needed at the end of August in order for the market to return to its pre-crisis levels, the center's analysts estimated that this level might be reached in approximately three more years -- as long as the economy creates 207,000 jobs each month.
If August's reduced output of 142,000 jobs becomes the new normal, the concept of a fully recovered employment market may very well become a thing of the past.
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