The most recent employment report released this past Friday showed an increase in non-farm payrolls of only 113k jobs but a continued decline in the overall rate of unemployed to 6.6%.

While the growth in jobs is not what we would like, the overall rate of unemployment is not bad by historical measures, right?

To steal a phrase from the inimitable radio host Paul Harvey, “And now, the rest of the story.”

Thanks to the regular reader who brought my attention to a recent report released by Boston Federal Reserve president Eric Rosengren addressing the structural problems in our labor markets that reflect the real employment situation in America.  This report, Underutilization in Our Labor Markets highlights the following:

While the narrow measure of unemployment has been improving, the broader measures from the Bureau of Labor Statistics show that over 20 million Americans are currently either unemployed, are marginally attached to the labor force (including “discouraged” workers), or are working part time when they would prefer full-time work.

“For these Americans, it is all too painfully apparent that labor markets remain far from their state prior to the recession,” said Rosengren.  “Using the narrow, widely reported unemployment rate alone could suggest a misleadingly optimistic state of affairs.”

The broader measures of unemployment remain unusually high relative to the narrow (U-3) measure of unemployment, said Rosengren.  In fact, the broader the measure, the further the current reading is from its pre-recession level and from its average from 1994-2007.

Rosengren noted that while his talk focused on data points and measures, “we cannot lose sight of matters of human toll and potential, as well.”

The broadest measure is particularly striking.  It includes people who are available to work full time but have had their hours reduced, or can only secure part time work. “Even at this point in the recovery, the measure is still nearly four and a quarter percentage points or 6.5 million people above the pre-recession average,” (LD’s highlight) said Rosengren.  “The large number of individuals working part time for economic reasons highlights the need for much more improvement in labor markets.”

That point in bold is the elephant in our nation’s living rooms and kitchens. What are the implications and challenges of this enormous slack in our labor markets? Rosengren asserts:

1. Monetary policy will not effectively address structural problems in labor markets.

2. One potential explanation for persistently low price and wage growth may be that the broader measures of labor markets are signaling a weak labor market.

If monetary policy is not the right approach to address the structurally unemployed then 1. why has the Federal Reserve engaged in the quantitative easing experiment, and 2. what are the other folks in Washington doing to address this enormous drag on our economy and ultimately our nation?

Rosengren concludes that ultimately all the Federal Reserve can do, though, is to keep rates lower for longer:

With too much labor market slack and very low inflation rates, monetary policy should continue to be highly accommodative.

For those who would like to review the 19-page overview and charts connected to Rosengren’s talk I welcome sharing them.

Underutilization in U.S Labor Markets, Eric S. Rosengren, President and CEO Federal Reserve Bank of Boston; February 6, 2014, New College of Florida

So 6.6 — as in the 6.6% rate of unemployment — is not the proper measure to assess the real employment situation in America. What is the right number? 6.5 is the right number, as in the 6.5 million people who are available to work full time but have had their hours reduced or can only find part time work.

“Now you know the rest of the story.”

Navigate accordingly.

Larry Doyle

Please check out book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy.