In economic speak, you usually see what they call U3 for the unemployment rate. This number started at a low 3.5% pre-pandemic and spiked up to 14.7% at its worst. That’s well above the previous recession which topped out at 10% in 2009.
Unemployment has come down a little since and sits at 7.9%. Still, when looking around at my community and hearing from friends, I find this hard to believe. And I’m guessing you do as well.
The real unemployment rate is much higher than this number that’s often used by politicians. U3 omits a large portion of the U.S. population completely from the equation.
One large group it leaves out is discouraged workers. These are people able to work, but haven’t looked for a job in the last four weeks. That’s not a lot of time to be completely cut out of the equation.
There’s a slightly better unemployment number U6 which includes more groups. But even then, it still misses too much. So, for a better look at what’s really happening, let’s check out a more insightful trend.
Real Unemployment Based on Labor Force Participation
The labor force participation rate shows employed workers divided by the working age population. And this unemployment measure isn’t looking good over the last 20 years…
This number topped out at 67.3% in 2000 and since, it’s bounced down to 61%. That might not seem like a big move but it is when you consider the U.S. labor force is about 160 million people. That change accounts for over 10 million jobs. And these jobs have not recovered over the past two recessions and recoveries.
But wait, the number gets even worse when you read the fine print. The labor force participation rate does not include retirees, incarcerated people and students… but more people are forced into those categories due to big shifts in our economy…
Losing Jobs to Automation
The labor force participation downturn started around the year 2000, along with the technology bubble. There was huge hype around automation, the internet and other technologies. Although, we know how that story ended. But now that we have some more data in the door, it reminds me of the hype cycle.
We’ve gone through the peak of inflated expectations, the trough of disillusionment and we’re entering the plateau of productivity. Already, technology has replaced millions of jobs and millions more will follow.
Of course, new technologies create new jobs, but not at the same rate. Job replacing automation this time around is not like the past industrial revolution.
A small team of developers can create software that replaces thousands and even millions of jobs. A headline worthy example is driverless cars. They’re a ways out – likely a few decades for majority adoption – but will replace over three million truck drivers alone. Also, say goodbye to all the Uber and Lyft drivers.
For a much deeper dive on this topic, check out my favorite article on Universal Basic Income. I’ve packed it with valuable insight.
Trends in the real unemployment rate aren’t looking good. One takeaway is to better prepare by building better employment skillsets. Although, I have a bigger takeaway…
Technology is eating our world. The five largest tech companies alone make up about 24% of the S&P 500. And instead of fighting the software and robots – which on average make our lives easier – get in on the action. Anyone can invest in these companies today and share in the success.
The top tech stock valuations are a bit lofty but not all have skyrocketed. I’ve covered two tech stocks on the top of my buy list.