Hidden workforce challenges domestic economic recovery

Correction: This article on the nation’s hidden labor force incorrectly said that counting this group would have boosted February’s unemployment rate to 10.5 percent, from the more commonly cited 8.9 percent. In fact, counting the more than 6.4 million people who say they are not looking for a job but want to work would have raised February’s jobless rate to 13 percent.

March 15, 2011

Overshadowing the nation’s economic recovery is not only the number of Americans who have lost their jobs, but also those who have stopped looking for new ones.

These workers are not counted in the Labor Department’s monthly unemployment rate, yet they say they are willing to work. Since the recession began, their numbers have grown by 30 percent, to more than 6.4 million, amounting to a hidden labor force that could stymie the turnaround.

Adding these workers to February’s jobless rate pushes it up to 10.5 percent, well above the more commonly cited 8.9 percent rate.An even broader measure of unemployment, which includes people forced to work part time, stands at nearly 16 percent.

Economists say the longer these workers stay out of the job market, the harder it will be for them to find employment, creating a vicious circle that can spiral for months or longer. Meanwhile, their delayed entry into the job market means smaller paychecks in the future. And if these ranks remain high, economists worry that it will signal a much deeper and more troubling problem for the country: Workers’ skills don’t match the jobs available.

“It can be a self-reinforcing problem, where it just gets worse over time,” said Burt Barnow, an economist and professor at George Washington University.

Part of the reason these workers are not factored into the unemployment rate is a technical quirk: Workers are counted as unemployed only if they are actively job-hunting. Otherwise, they are considered outside of the labor force altogether.

That means Silver Spring resident Dirk Bos, 42, isn’t technically unemployed, according to the government’s definitions, even though he hasn’t worked since he was laid off from his position as a construction administrator at an architecture firm in 2008.

Bos said he knew he didn’t stand a chance of finding a new job in his field. The housing market has been in turmoil, and his firm went through two more rounds of layoffs that included some of its top principals.

“Rather than turning around and getting straight back out to the workforce, both of us [Bos and his wife] said, ‘Let’s take it easy. Take it one day at a time,’ ” he said.

For now, Bos is relying on his wife’s income and on savings to make ends meet. He plans to begin looking for a job eventually and is applying for school in hopes of launching a new career as a librarian.

“You hope in two or three years that things might change,” he said.

People like Bos have historically made up just a sliver of the 86 million Americans who aren’t part of the workforce, most of whom are are students, retired or stay-at-home spouses. But since 2007, the number of people who want a job but aren’t looking for one — the hidden labor force — rose from 4.7 million to more than 6 million. Making ends meet can be a struggle, as they do not qualify for unemployment benefits.

Over a million members of this group have given up looking for work even though they are able to hold a job — people officially designated as “discouraged.” That’s more than double the number at the start of the recession.

Bringing these workers back into the labor force could prove to be a tricky problem, both politically and economically. If they begin to seek work in an improving job market, they could increase the unemployment rate. That’s a scenario that will be tough for politicians headed into campaign season to explain, particularly since the rate is being used to excoriate Obama’s administration. Republican presidential hopeful Mitt Romney, for example, has made the unemployment rate the centerpiece of what he is now calling the Obama Misery Index.

It may not be possible to bring the hidden workers back into the job market without equipping them with new skills. Roughly half of employers say they are providing readiness or remedial training for their associates to prepare them for their jobs, according to recent surveys of businesses by Corporate Voices for Working Families, a nonprofit that focuses on workforce readiness.

“Employers have jobs, but they can’t find the workers that are necessary,” said Steve Wing, president of the group. “I think people are losing hope. That’s what we don’t want to have happen.”

Compounding the problem is the length of time many people have been out of work. A study last year by three economists at the Federal Reserve Bank of Chicago found that workers unemployed for less than a month have a 34 percent chance of finding a job the next month. But those who had been out of work for more than six months had a 19 percent chance.

That’s partly because the longer that workers are out of the job market, the more their skills and knowledge are likely to fade.

Fifty-year-old Ramona Abbott, who lives in northwest Washington state, was laid off from an engineering firm a decade ago and decided to start a consulting business. But as contracts began to dry up during the economic downturn, she moved into what she jokingly calls “forced retirement.”

Abbott said she has applied for a few jobs while working to keep her skills sharp, but she gave up after a prospective employer questioned her time away from the field.

“It’s basically code for: ‘You’re too old now and your experience is old,’ ” Abbott said. “If someone’s been out of their field for five to 10 years, you just automatically begin to question whether or not they remember how to do all of this.”

The cloud of unemployment can also linger long after returning to the workforce. Columbia University economist Till von Wachter compared the wages of workers laid off during the 1982 recession with those of people who kept their jobs and found a 20 percent difference after two decades.

Terry Miale, 50, hasn’t been able to match the $75,000-a-year salary she earned as an engineer at a telecom firm since she was laid off for the first time a decade ago. She worked as an administrative assistant before landing at another communications firm — only to lose her job in 2008.

Now, Miale is working at a Macy’s in the Pittsburgh area making $8.10 an hour, but her position is strictly “on call” — and often the store doesn’t. She said she has stopped looking for other work, because she already knows what the outcome will be.

“I effectively have lost my power as a human being,” she said. “I feel like no matter what I do, it’s not going to make any difference. If I open my mouth, it’s just white noise coming out because no one hears.”

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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