Unemployment Data and Non-Participation

I don't want to work
I just wanna bang on the drum all day
--Todd Rundgren

The headline unemployment number ticked down to 8.1% last month. It did so because non-participants in the labor market hit 30+ yr lows at 63.5%. If we take this number at face value, this means that more than 1/3 of all working age people are not even seeking work.

We do not know why these people are not seeking work. Perhaps they have already accumulated the economic resources that they will need in their upcoming years. Knowing what we know about wealth distribution and savings rates in this country, however, it seems unlikely that the majority of the 1/3+ non-participants possess that level of wealth.

Others may not have the economic resources in their possession but are counting on obtaining them in annuity-like fashion via rich monthly retirement or pension payments that enable the recipients to leave the workforce prematurely and still live comfortably. Many government (e.g., military, post office) and corporate (e.g., early retirement 'packages') workers fit this category.

There is also a fraction of people obtaining economic resources from others, either by charity or by force (read: government). These people are not participating in the labor force because others are working for them. There is some overlap between this group and the 'early retirement' group noted above, particularly w.r.t. government workers who retire early. This is because their pensions are paid by taxpayers.

Whatever the case, people not participating in the labor force represent productive capacity that is not being utilized. This is lost production--lost wealth that could have improved general standard of living. This is an important component of unemployment that is missing from the headline number. People will therefore be likely to neglect pondering the consequences of so many people not working.

Although politically distasteful (since the number will be higher), the most meaningful unemployment number is this one: total number of people not working/total number of people.

This metric provides the best insight into the economic and social consequences of lost productivity on standard of living.