Unemployment wild card: the 577,000 who gave up job hunts

They aren’t included in July’s unemployment rate of 9.4 percent. But as they start looking for jobs again, the rate could jump.

Jason Reed/REUTERS
Attendees line up to interview with a prospective employer at a job fair in Washington Thursday. The number of US workers filing new claims for jobless benefits fell sharply last week, a government report showed on Thursday.

There is one big reason that the US unemployment rate dropped to 9.4 percent in July: A lot of out-of-work people decided not to look for a job this summer.

That means they aren't included in the unemployment rate.

Many of these people have decided it's not worth trying to get a job when thousands of other people are looking for employment. Some could be recent college grads who have failed to find a job and postponed the search until the fall.

No matter what the reason, some 577,000 people dropped out of the labor market in June and July.

"It's not uncommon for people to drop out if they feel it is fruitless to look for jobs," says Christine Owens, executive director of the National Employment Law Project, an advocacy group for the unemployed.

Yet at some time, those discouraged workers will hear about friends who got jobs or see hiring signs. They will become more optimistic and resume the job search. This is why the Obama administration and many economists view the drop in the unemployment rate as temporary.

"Once the payroll losses turns to gains, those workers tend to move back into the labor force; they start looking for work," says Richard DeKaser of Woodley Park Research, an economic advisory firm in Washington. "That is why after the economy starts to rebound, you can see the unemployment rate rise."

Payroll losses are continuing, but at a much slower pace. According to the Department of Labor on Friday, the economy shed 247,000 jobs in July. This is an improvement from 443,000 in June and 303,000 in May.

"This is a positive sign, and we want to see those positive signs," Ms. Owens says. "But we are still losing jobs every month, and we need to climb out of that hole."

About a third of the 14.5 million people who are unemployed in the United States have been out of work for six months or longer. Those 5 million people are considered long-term unemployed. "It's the highest number and the highest share of the unemployed ever recorded," Owen says.

Many of those workers were employed in manufacturing or construction, probably in the Midwest, says Owens. "We know the job loss in the recession is mainly males," she says. "And since the only areas that have been hiring are in healthcare, education, and government, it will take awhile until they find a replacement job."

In fact, in the latest government numbers, the average time it has taken to find a new job is 25.1 weeks – up from 17.3 weeks a year ago. "That suggests there are a lot of people who are structurally unemployed," says John Challenger, a labor expert at Challenger, Gray & Christmas, a Chicago outplacement firm. "There are still way more people looking for jobs than there are jobs out there."

People who have been looking for work for some time may find that their skills are out of date, Mr. Challenger says. Or they may be in a geographic area, such as Detroit, where jobs are scarce.

"There is a whole segment that is really struggling," he says.

Moreover, employers don't necessarily have to add people when they need to expand. According to the government numbers Friday, some 8.8 million people are working part time who would prefer full-time work. Last month, that happened to a limited extent: The average workweek rose to 33.1 hours, up from 33 hours in June, which was the lowest level on record dating to 1964.

"There is a lot of slack in the economy. That's why this unemployment problem will go on for some time," says Challenger.


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