The Real Employment Problem

Supposedly the economy is rebounding.  Years of stimulus spending by the administration and over $3 trillion in quantitative easing by the Fed are allegedly working.  Or are they?

The Bureau of Labor Statistics reported in October that the unemployment rate, U3, declined very slightly to 7.2%.

Concurrently, the BLS noted that the unemployment rate to include those marginally attached to the workforce, or U6, was 13.6%.

These statistics, however, hide a painful and tragic reality.  While unemployment rates have dropped, the labor force participation rate has also declined significantly in recent years.  The labor force participation rate in September 2013 was 63.2%, the lowest since 1978.

The implications of the declining rate are profound.  While unemployment appears to be lower, the lower labor force participation rate sharply mitigates the "alleged" improvement in the economy -- and implies that a growing number of Americans are either voluntarily or involuntarily dropping out of the workforce.

Additionally, the statistics provided by the Bureau of Labor Statistics disguise many other disturbing labor trends.

For example, the unemployment rates for young people and minorities are substantially higher than for the nation as a whole.  The teenage unemployment rate is over 21%.  The unemployment rate for blacks was 12.9% in September, with Hispanic unemployment at 9%.

Behind these higher rates of unemployment is the education and experience gap of our young workers and minorities.

Corporate recruiters are reporting that it is increasingly difficult to find quality talent due principally to an education and experience gaps with applicants.  As such, the unemployed are competing against quality candidates who have been working throughout the recession.

Notwithstanding the quality gap, the nation is embroiled in a time of unparalleled worker dissatisfaction, particularly for those employees who are described as top performers.  Employee engagement has been declining for over the past two decades.

The net result of the unemployment rates, the lack of employee engagement, the very low labor force participation rate, and declining real wages is that our nation's economic recovery will be anemic at best.  Concurrently, the impact of this underutilization of our labor force will drag on the economy for years to come as younger workers are unable to gain that necessary experience to be productive in the labor force in the years ahead.

Be it part-time working, the Affordable Care Act, higher minimum wages, declining worker productivity, or failed stimulus programs, the net result is that massive infusions of deficit spending and quantitative easing by the Federal Reserve have failed miserably at improving the employment picture in the United States.

The absolute deception by our government regarding the underlying causes of the unemployment and underemployment issues is a national disgrace.

Our nation's policies for improving employment have failed.  In order to turn around this trend of underemployment and lower labor force participation, our nation must rebuild itself from the inside out.

First, quality education is a must.  For too long our nation has thrown money at the problem rather than demand results.  Academic excellence and a robust academic institution are critical to training Americans how to think, how to be valuable to an employer, and how to make a contribution to a team.

Second, failed attempts at stimulating an economy with artificially created "jobs" and artificially low interest rates have had no material affect for the cost incurred on improving the employment picture.  Throwing money at anything solves nothing -- but it does run up a deficit.

Third, until the nation realizes that some jobs are worth only so much, continued efforts at raising a minimum wage will do nothing except reduce opportunities for our youngest workers to get experience in the workforce.

Should minimum wage continue to increase, the incentive for business to automate those very jobs that are the stepping stones for more lucrative employment later on will continue.  While it may feel better to raise minimum wage, the impact on the most vulnerable workers is palpable.

Finally, the legal environment and regulatory environment are so unfavorable to the employer that even when they are dealing with dishonest employees, employers are increasingly reluctant to hire someone full-time. In addition to the medical costs, litigation exposure and workmen's compensation exposure make hiring a marginal employee a high-risk gamble at best.

If our nation is serious about reducing unemployment, particularly among the young and the minorities of our nation, we must get realistic in providing quality education and creating a quality environment for employers to want to hire.  Until then, statistics will be nothing more than statistics, and a great national asset, our young, will become a lost generation.

The statistics somewhatCol. Frank Ryan, CPA, USMCR (Ret.) served in Iraq and briefly in Afghanistan.  He specializes in corporate restructuring and lectures on ethics for the state CPA societies.  He has served on numerous boards of publicly traded and non-profit organizations.  He can be reached at and twitter at @fryan1951.