The Human Capital Shell Game

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The recently released unemployment numbers, showing a slight decrease to 8.2% in March 2012 from 8.3% the month before, are filled with false optimism. First of all, that extends the longest streak of 8%-plus unemployment since the Great Depression. Secondly, the U.S. economy hasn’t been below 8% unemployment since January 2009. Once you delve into the Labor Participation Rate, it is not an optimistic picture.

In January, according to the Bureau of Labor Statistics (BLS), the number of Americans not in the labor force exploded by an unprecedented record 1.2 million people. Fewer people in the workforce means the percentage of unemployed people in the workforce drops. So, how did the unemployment rate decrease, while the Labor Participation Rate also decreased? Call it the Human Capital Shell Game.

What you didn’t hear about the loss of 1.2 million labor force loss? It’s not a very popular topic, that’s for sure.  Follow the math: 1.2 million people dropped out of the labor force in one month. So as the labor force increased from 153.9 million to 154.4 million, the non-institutional population increased by 242.3 million. What does that mean? Those people not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7%. In effect, the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation.

What the U.S. Government should be focusing on is redefining the Labor Participation Rate.

So, where did a lot of these people “disappear to?”  They still work and earn money, just not as traditional employees. Whereas in the middle of the 20th century when our parents worked at one job, for one company, today, there are 42 million consultants, independent contractors, entrepreneurs, and freelancers working multiple gigs for multiple clients.

Although independent workers were a full one-third of the U.S. workforce at last count (which was 7 years ago), they aren’t counted by the Bureau of Labor Statistics in a consistent and ongoing way. Current statistics tend to lump workers into one of three classes: private wage and salary workers, government workers, and the self-employed. But these groupings don’t account for the nuances in how people work now and the overlap between groups. For example, on-call or contract workers might be lumped in with wage and salary workers, when really they’re independent workers. As a result, our outdated numbers have led to outdated data tracking, compiling, and analysis that no longer accurately reflect America’s 21st century workforce.

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