Shadow Employment By: Gabriel PotterMBA, AIFA® 2017.07.10

Critics of the post 2009 recovery from the Great Recession believed the improving unemployment numbers from Washington DC were misleading.  They argued the true unemployment rate was underappreciated because the labor rate participation had fallen.  In other words, unemployment was worse than it looked from the official numbers because it didn’t count the people on the sidelines who’d given up looking for a job, and were not included in the unemployment rate.  Alternatively, the unemployment rate would count someone as employed even if they got a new job that paid half as much as their previous job. This underreported overhang of discouraged or underemployed workers was the shadow of unemployment, meaningful and dark, but not substantiated in the most followed key statistics. 

The reasons for the decreased labor participation rate are numerous; much of the increase is attributed to a large, but aging baby boomer demographic which collectively is beginning to embrace retirement.  However, after 9 years of recovery, we’ve created more than twice as many jobs as we lost in the 2008 financial crisis.  So where are we today?    

The unemployment rate ticked up slightly in the past month, from 4.3% to 4.4%.  Naturally, unemployment going up is bad.  However, at this level of unemployment (i.e. below 5%) and at this level of unfilled job openings (a record 6.0 million according to the latest from the US Bureau of Labor Statistics), the slight uptick in unemployment has more to do with previously discouraged potential workers trying, unsuccessfully at first, to reenter the workforce.  In other words, the shadow unemployment population is trying to move into the light.  Thus, a key metric for success or failure in regards to improving our current unemployment situation will have more to do with addressing skills and education gaps with previously sidelined workers than simply trying to jump-start the economy.  There are open opportunities, millions of them,  but figuring out ways – either through training, mentoring, community college alliances, community outreach, and so on – to convert previously unemployed people into  employees is the current dilemma.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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