Jobless or Unemployed -- What's the Difference?

September 12, 2013

Jobless or unemployed? It's an important distinction, with major implications for both short-term economic policy and the United States' long-term growth prospects, says the Wall Street Journal.

Anyone watching the economy over the past few years has heard that the government only considers people "unemployed" if they are actively looking for work. Economists mostly care about the people who would be working if they could -- in other words, people who are looking for jobs.

  • The recession wiped out 8 million jobs; four years into the supposed recovery, only 6 million of them have been regained.
  • Accounting for population growth, it would take more than seven years at the recent pace of hiring to get back to prerecession levels of employment.
  • As recently reported by the Wall Street Journal, many employers won't even consider applicants who have been out of work for an extended period.

It's no surprise, then, that many Americans have given up looking for work. Officially, there are about a million "discouraged" workers, people who have stopped looking for a job because they don't believe they can find one. The Labor Department uses a fairly narrow definition of "discouraged" -- workers have to be available to work right now, and they have to have searched in the past year. But a full accounting of the discouraged would need to include those who have retired involuntarily, taken refuge in school, filed for disability or otherwise hidden from the brutal job market.

Those people are victims of the recession, but they don't count as "unemployed." The question for economists is how many of them will eventually return to the job market. It's a question that's absolutely central to understanding the state of the economy, both now and in the future.

  • If most of those who have given up will eventually return, then they are, for all intents and purposes, "unemployed" -- which means the official 7.4 percent unemployment rate substantially understates how bad the job market is.
  • That's terrible news in the short-term, because it means the recovery is even weaker than the official numbers suggest.
  • But it's actually good news in the long run, because it means there's no reason the economy can't ultimately get back to its prerecession peak.
  • And for policymakers at the Federal Reserve and elsewhere, it means there's no reason to ease up on efforts to boost the economy -- in fact, quite the opposite.

Source: Ben Casselman, "What's the Difference Between Jobless and Unemployed?" Wall Street Journal, September 6, 2013.

 

Browse more articles on Economic Issues