The depressing jobs mystery America’s top labor economist aims to solve

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The most closely watched indicator in the US economy is the unemployment rate, but is it just a red herring?

Heidi Shierholz, who studies labor issues at the left-leaning Economic Policy Institute, was appointed today as the chief economist at the US Department of Labor, which oversees the research behind the indicator. She says the improving unemployment rate understates the joblessness problem because it doesn’t account for some 6 million workers who went missing after the 2008 recession. The mystery at hand is what happened to them.

The unemployment rate most people are familiar with (there actually are six) shows the share of Americans who are looking for work and can’t find it, but it doesn’t account for those who have stopped looking for jobs and have left the labor force entirely. Without knowing why so many people of working age have given up on finding employment, it’s hard to develop policy solutions to the burdens this puts on families and on social programs.

The US labor force as a percentage of the population has been shrinking since it peaked in 1999, when 67.1% of the population worked; today, 62.9% of the population is employed. There are demographic reasons why that figure is shrinking—like the Baby Boomer generation hitting retirement age. Social trends, like the increasing number of people spending more time pursuing higher education, also are having an impact. But these shifts don’t fully explain what is happening.

Shierholz’s research shows that the largest group to drop out of the labor force are men ages 25 to 54—in other words, people in the prime of their working lives. (Her research method was fairly straightforward. First, she took forecasts made by the Department of Labor in 2007, at the peak of the economic boom, for how many people would drop out of the labor force in the next decade, assuming that the job market stayed healthy. Then she compared those figures to the actual changes in the labor force.)

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Her conclusion is not that would-be workers lack the skills for the available jobs, but that there simply isn’t enough demand for workers, especially in the public sector, which has faced several years of sustained cuts. Her new job in the Obama administration will give her a powerful pulpit, but even if she can convince economists that she’s unmasked the right villain, selling the fractured US government on a response will be no easier a task.