Jobs Report: As Many As Three Million Long-Term Unemployed Not Counted As Jobless Rate Drops

Missing Persons Report

The job market is still on a long road to full recovery, but it took a big step in January.

U.S. nonfarm payrolls grew by 243,000 jobs in January, the Bureau of Labor Statistics reported on Friday, up from a revised 203,000 jobs in December.

The unemployment rate declined to 8.3 percent in January, from 8.5 percent in December. But if workers who have dropped out of the labor force were included, some economists estimate, the unemployment could be higher than 10 percent.

"This report is encouraging, but it still underscores how far a distance we have to go and how many people are still long-term unemployed and disconnected from the workforce," said Harvard economist Lawrence Katz. "Even if we were willing to say that the scars of the great recession mean a couple of million people drop out permanently, we still have many years to go before we get back to where we were."

Still, the headline numbers were far better than market expectations for payroll growth of about 155,000 jobs and an unemployment rate of 8.5 percent. The Dow Jones Industrial Average rose 107 points in early trading, while the Nasdaq rose 28 points and the S&P 500 rose about 2 points.

The job growth is indeed good news for the economy, the labor market -- and for President Barack Obama's reelection chances.

Still, some perspective is in order: Total nonfarm payroll employment now stands at 132.4 million jobs, after some benchmark revisions, or about 5.6 million jobs lower than the 138 million at the peak in January 2008. In other words, it will take many more months of this sort of job growth just to get employment back to where it was four years ago.

A recent study by Washington, D.C. consulting firm Hamilton Place Strategies estimates that there may be three million long-term unemployed people who are currently not being counted by the Labor Department because they have simply given up looking for work. Signs of an improving job market might bring them back to the labor force, which would push the unemployment rate higher.

In fact, the labor force participation rate fell to 63.7 percent in January from 64 percent in December, the lowest since January 1982, suggesting workers are still leaving the labor force.

A group of workers the Bureau of Labor Statistics labels "not in the labor force" -- because they have not looked for work in more than a month -- but who currently want a job, has risen by 1.66 million since the recession began. However, this number is lower than some economists' estimates. If those 1.66 million workers were added back to the civilian labor force, then the unemployment rate would jump to 9.2 percent.

Some economists have even higher estimates of how many workers who want jobs are not being counted. For example, if the three million workers Hamilton Place Strategies estimates are out of the labor force were added back in, then that would theoretically push the jobless rate up to 10.9 percent.

By way of comparison, unemployment peaked at 10 percent in October 2009. A broad measure of unemployment, which includes workers only marginally attached to the labor force, fell to 15.1 percent, the lowest since February of 2009.

The private sector added 257,000 jobs in January, while the government sector cut 14,000. The biggest job-creating sectors were manufacturing, which added 50,000 jobs, and "leisure and hospitality" services, which added 44,000 jobs. The average private-sector work week held steady at 34.5 hours, while average hourly wages rose to $23.29 from $23.25.

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