Bad Labor Market Could Get Worse


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published July 9, 2003

Despite the expectant rebound in our economy, unemployment is on the rise. The May release of employment data led House Democratic Leader Representative Pelosi to state: “…and that brings the total number of private sector jobs lost since President Bush took office to 3.1 million, the worst record of job creation of any President since the Great Depression.” Strong claims like these need perspective and clarification.

The Department of Labor provides stats on unemployment. Reading the stats in one way will support Rep. Pelosi’s claim, but an alternative reading will provide a less inflammatory picture of the state of employment. Unfortunately, neither of these readings may accurately capture the poor state of employment. Moreover, the unemployment picture is worse when we consider the effects of the FTC “Do Not Call” Registry.

First, an explanation of Rep. Pelosi’s claim. In January 2001, the month of President Bush’s inauguration, 5.9 million were receiving unemployment. By May 2003, this number had increased to 9.0 million, or by 3.1 million Americans.

However, if you count the number of people with jobs, the picture is much less depressing. In January 2001, 137.8 million Americans were employed. In June 2003, the number had dropped to 137.5 million. Over this three year period, the ranks of the employed have only decreased by 359 thousand.

The discrepancy in the number of people unemployed and the reduced number of jobs reflects the fact that more people have entered the job market since January 2001 than have retired. When we also consider the number of people who are neither employed nor receiving unemployment, but would participate in the labor market if the economy was stronger, we get an even dimmer picture.

In the three years following the bursting of the internet and telecom bubble, which happenstance would have it coincide with President Bush’s term, a number of professionals have been displaced. Our official unemployment rate has increased from 4.1% in January 2001 to 6.4% or 9.4 million in June 2003. Put in perspective, the US hasn’t experienced unemployment levels lower than 4.1% since 1969. High unemployment above 6.4% was experienced as recently as the time period of 1990-94. Perhaps more startling than the level of unemployment that we are experiencing is the rate at which it rose.

The official unemployment figures are only a portion of the full story. The Department of Labor reports unemployment figures on individuals that either have a job or are receiving unemployment. What about those with neither and yet would like to work? Many people experience the difficulty of running out their unemployment benefits or otherwise becoming ineligible.

To better estimate the effects to individuals that are experiencing unemployment, we have to reexamine the definition of the labor pool. The Department of Labor defines the labor pool as those that either have a job or are receiving unemployment. The portion of Americans that fit this description will change. In bad economies, fewer people participate in the official labor pool reflecting both their loss of job prospects and ineligibility for unemployment benefits.

In January ‘01, there were 214 million Americans of working age of which 67.3% participated in the labor pool. By June of ‘03, the number of Americans of working age has increased to 221 million due to population growth, but only 66.6% of them participate in the labor pool. This implies that 0.7% more or 1.5 million Americans are neither employed nor receiving unemployment.

If, instead of ignoring these individuals, we added them to the count of the unemployed, then the full count of unemployed individuals increases to 10.9 million, or 7.3% of our potential labor force. The last time we experienced unemployment that high was in the 1980’s during an oil crises.

We haven’t seen the last of it either. After the job losses in the telecom, consulting, and IT industry, we are now facing more job losses from the telemarketing industry. The July 2, 2003 Wall Street Journal reported that 6.5 million Americans are employed in the telemarketing sector. Once the FTC fully implements its “Do Not Call” registry, the industry anticipates 2 million job losses. If these people join the ranks of the officially unemployed, our unemployment rate will increase further to 7.7%. If we count those who leave the labor pool due to lack of opportunity, 8.8% of Americans will be unemployed.

With excess capacity stalling the growth of jobs during the current economic upturn, our growing unemployment challenge will take time and effort to overcome. Furthermore, the FTC “Do Not Call” Registry doesn’t help the situation.

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About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.