Monthly Updates of the Number of “Missing Workers” and What the Unemployment Rate Would Be If They Were Looking for Work

More than four years since the Great Recession officially ended in June 2009, the unemployment rate stands at 7.3 percent. This is still a percentage point above the highest unemployment rate of the early 2000s downturn, 6.3 percent. However, 7.3 percent is a big improvement from the high of 10.0 percent in the fall of 2009. Unfortunately, most of that improvement was for all the wrong reasons.

In today’s labor market, the unemployment rate drastically understates the weakness of job opportunities. This is because in the weak labor market of the aftermath of the Great Recession, there are a huge number of “missing workers”—potential workers who are neither employed nor actively seeking work simply because job opportunities remain so scarce. Because jobless workers are only counted as unemployed if they are actively seeking work, these missing workers are not reflected in the unemployment rate.

As part of its ongoing effort to create the metrics needed to assess how well the economy is working for America’s broad middle class, EPI is introducing its “missing workers” estimate. Our estimate shows there are currently nearly 5 million missing workers. These are workers who would be in the labor force if job opportunities were significantly expanded but, given the state of the labor market, are sidelined.

Exactly how many missing workers macroeconomic policymakers believe there are has enormous implications for their assessment of the strength of the job market, and therefore for their policy decisions. For example, if they underestimate the number of missing workers, they will overstate the strength of the labor market, and be less likely to provide the economy with the support it needs. As shown in the figure below, if the nearly 5 million missing workers were looking for work and thus counted as unemployed, the unemployment rate in August would have been 10.1 percent instead of 7.3 percent.

Estimating the number of missing workers is not straightforward because some changes in labor force participation over the last five years have nothing at all to do with the weak labor market (for example, baby boomers beginning to reach retirement age). Our estimate of the number of missing workers isolates the cyclical component of the decline in the labor force participation rate since the start of the Great Recession. In other words, it counts just those missing workers who would be in the labor force if job opportunities were strong. It doesn’t count, for example, those retiring baby boomers who would have left the labor force whether or not the Great Recession happened.

We will update these estimates on the first Friday of every month immediately after the Bureau of Labor Statistics releases the monthly jobs numbers. In particular, we will update the following three figures each month at EPI’s Missing Workers page:

1. The trend in the total number of missing workers, currently nearly 5 million:

2. The breakdown of missing workers by gender and age, showing most missing workers are of prime working age:

3. The earlier figure depicting what the unemployment rate would be if the missing workers were looking for jobs.

Methodology

How do we estimate the number of missing workers? Labor force participation rate projections published by the Bureau of Labor Statistics in November 2007—before the start of the Great Recession—are available in Table 3 of Mitra Toossi, “Labor Force Projections to 2016: More Workers in Their Golden Years,” Bureau of Labor Statistics Monthly Labor Review, November 2007. The projections assumed a healthy labor market over the period in question, 2006–2016, so the participation rate changes it forecasts reflect purely non-cyclical factors (e.g., the impact of retiring baby boomers). The difference between these projections and the actual labor force participation rate is thus a good measure of the cyclical change in the labor force participation rate, i.e., the change that is a direct result of the weak labor market in the Great Recession and its aftermath. Based on this logic, missing workers are estimated in the following way: The labor force participation rate projections for 2016 by gender and age group (age groups 16–19, 20–24, 25–34, 35–44, 45–54, 55+) available in Table 3 of Toossi (2007) are assumed to be structural rates. The current month’s structural rates (by gender and age group) are calculated by linearly interpolating between 2006 and 2016. The size of the potential labor force is calculated by multiplying the current month’s structural rates by actual population numbers (available by gender and age group from the Current Population Survey public data series). The difference between the size of the potential labor force and size of the actual labor force (also available by gender and age group from the Current Population Survey public data series) is the number of missing workers.