WASHINGTON (MarketWatch) – The biggest problem in the American economy today is that the economy can’t generate enough demand to employ all the willing and available workers. But that obvious fact hasn’t deterred some people from inventing some enticing theories about what’s behind our economic woes.

They say that the high unemployment rate is due to lack of skills. They say that all the new jobs are just part-time jobs any way. They say that small businesses aren’t hiring. They say that millions of people have simply given up on getting a job and have joined the 47%. And they say that this is the worst jobs recovery.

All of these claims are misleading, and repeating them distracts us from what’s really wrong: We’re trapped in a vicious cycle in which slow job growth leads to weak income growth, which in turn means we can’t spend enough to create the demand necessary for businesses to hire more workers.

Let’s go through each of these theories and examine the evidence.

If skilled construction workers are so hard to find, then why aren’t companies bidding up their wages? MarketWatch

Are good workers really hard to find?

This is the latest theory by those who want to deny that our economic problems are the result of weak demand. They argue that many of the 12 million unemployed people simply lack the skills that companies need. It’s a structural, not a cyclical problem, they say.

For example, the National Association of Home Builders recently complained that half of building contractors said that lack of qualified workers delays construction. About 15% of the builders say they’ve had to turn down jobs because they can’t find workers.

Does this complaint hold up? No. Sure, there are certainly isolated pockets of scarcity, but it’s not a general problem.

According to the Bureau of Labor Statistics, the unemployment rate for those who identify themselves as construction workers was 13.2% in April. More than 1 million people say they are looking for construction jobs.

Construction workers are notoriously mobile, willing to hop in the RV and drive a thousand miles for a job. That’s how all those condos in Las Vegas got built.

The economic laws of supply and demand would suggest that if a certain type of labor is in short supply, the price of that labor would rise. If the builders can’t find enough plumbers or drywall installers, then they need to raise the wages they are offering.

That’s not happening. According to BLS data, average hourly earnings for construction workers are up 1.7% in the past year. That’s barely ahead of the inflation rate. Wage growth is similarly slow in almost every industry.

Since the recession ended in 2009, almost all of the new jobs have been full-time jobs. The number of part-time jobs is nearly unchanged. MarketWatch

Aren’t all the new jobs just lousy part-time ones?

There was a huge surge in part-time employment during the recession, the culmination of a four-decade trend toward more part-time jobs and a shorter work week. The proportion of part-time jobs (fewer than 35 hours a week) rose from about 20% just before the start of the 2008-09 recession to a record 25.1% in early 2010, according to the Bureau of Labor Statistics household survey.

Since the recession ended, however, the number of part-time jobs has been flat, while full-time jobs have risen by 3.6 million. By April, 23.7% of jobs were classified as part time.

The implication of this complaint about part-time work is that part-time jobs are inferior — and in many respects (such as pay and benefits) — they are. But many people prefer the flexibility of a part-time job, especially students, retirees and those who have family responsibilities. Part time work is not a bad thing for everyone.

The hiring rate at small business of 20 to 49 employees (green line) has dropped substantially since before the recession began, but the separation rate (red line) has fallen just as much. The bottom line: on net, small businesses are hiring at about the same pace as before. MarketWatch

Have small businesses stopped hiring?

Small businesses have slowed their pace of gross hiring substantially since before the recession. For example, firms with 20 to 49 workers are hiring about 15% fewer workers than they did during the 2005-06 expansion, according to the BLS’s business employment dynamics survey.

The hiring rate in these small firms has dropped from about 7.5% a decade ago to 6.5% today. That’s troubling to a lot of people who believe that small businesses are the engine of job growth.

However, firms of all sizes have slowed their pace of hiring substantially. The hiring rate (the percentage of new hires compared to the total workforce) is near record-low levels for all sizes of businesses.

The main reason for the slowdown in hiring is that very few workers are leaving their current job. About 3 million fewer people leave their job each year now than did before the recession. Job turnover is at record-low levels, which means companies don’t have to hire as many replacement workers.

Why labor turnover is so low is a key issue for policy makers. It could be that workers see no reason to change jobs, because they probably won’t get paid any more money. And bosses want to hold on to their current workers, because they know the ropes and don’t have to be trained.

Whatever the reason, the vaunted flexible U.S. labor markets have become much more rigid.

On a net basis (gross job gains minus gross job losses), small businesses haven’t slowed down their hiring at all.

In the first three years after the recession ended, net job growth at businesses with 20 to 49 workers averaged 1.3% per year compared with 1.2% for the three years just before the recession began. For large firms over 1,000, average net job growth has slowed from 1.1% to 0.9%.

Every month, more 6 million people drop out of the labor force, but nearly the same number drop back into the labor force. Being out of the labor force isn’t a permanent condition. MarketWatch

Have millions of people simply given up on getting a job?

As this jobless recovery has dragged on, the labor-force participation rate (the percentage of adults who are working or looking for work) has plunged to the lowest levels since the 1980s, leading many people to conclude that there is a lot of hidden unemployment (if you are not in the labor force, you’re not counted in the unemployment statistics).

Since the recession ended, the number of people not in the labor force has risen by 8.6 million, while the labor force has risen by only about a half million.

The implication is that millions of people have simply dropped out of the labor force, permanently discouraged that they’ll ever find work. The reality is not quite so dire, however.

BLS data show that more than 6 million people drop out of the labor force each month. One month they are working or looking for a job, and the next month they aren’t. That fits the conventional wisdom.

But the data also show than more than 6 million of people drop into the labor force each month. One month they weren’t even looking, but the next month they have a job or are actively looking for one.

These huge flows in and out of the labor force roughly cancel each other out, but over the past year, more people have dropped in than have dropped out. That’s consistent with a marginally improving labor market.

These data show that falling out of the labor force needn’t be permanent condition, especially for those in their prime working years. For many others, of course, it is permanent. Roughly half of the increase in the number of people not in the labor force can be attributed to retirement.

Job growth has been awfully weak during this recovery, but it was even worse in the recovery after the 2001 recession. MarketWatch

Is this the worst jobs recovery ever?

Well, it’s pretty bad. About 18 million people would like to work, but can’t find a job. In addition, nearly 8 million are involuntarily working part-time when they’d prefer full-time work.

But we’ve seen worse, at least in some respects. It’s been 46 months since the recession ended. In that time, nonfarm payrolls have increased by 4.9 million, while the private-sector has added 5.6 million jobs.

By contrast, in the 46 months after the 2001 recession ended, nonfarm payrolls rose by 3.3 million, and the private-sector added 2.8 million jobs.

This pathetic recovery has actually created more jobs than the previous jobless recovery. The private sector has created twice as many.

This is a horrible recovery. But it’s not the worst in terms of job growth.