The unemployment rate drops for the month of July. However, just because it’s lower does not necessarily mean things are better.

by theintrospectivemaster

The reported unemployment rate dropped to 7.4% for the month of July (a decrease of 0.2 percentage points) down from 7.6% reported for the month of June. The economy added 162,000 jobs, below projected expectations of 185,000 by analyst. The aggregated average for the past 12 months rests at 189,000 per month.

The unemployment rate is the lowest it has been since December of 2008.

The bad news however is that the reported unemployment rate does not report individuals who are “underemployed” (individuals working only a few hours a week). Even more striking is the number of individuals that are classified as “discouraged”; discouraged workers are those individuals that have not looked for work in over four weeks or more.

Essentially, you have individuals that have given up looking for employment all together as they have been unable to secure employment. The number of workers who have given up looking for employment have increased by 133,000 from July 2012 to July 2013 (2.5 million Americans are classified as “discouraged”).

Less individuals looking for work, the smaller the rate of unemployment appears.

In addition to discouraged workers there are also individuals that are opting out of the labor market all together, but not as a result of lack of employment opportunities. The population is aging; as a result individuals (baby boomers) are beginning to exit the labor market and entering retirement. Students are also opting to stay in college longer as well (pursuing additional education or extending their undergraduate studies). The majority share of students now graduate from undergrad within a six year frame instead of the standard four year period.

One additional indicator the unemployment rate fails to draw focus to, is the annual reported wage being paid to employees. The average hourly earnings for employees for the month of July has fallen by 2 cents; the  average over the past year has only risen 1.9% which is right at the rate of inflation of 1.8% for consumer products. When adjusting for inflation, wage earnings have been stagnant which is abnormal for the American economy.

Minimum wage earners are hit particularly harder as their purchasing power has eroded by 20% due to inflation. With an estimated 11.5 million individuals out of work there is an abundance of supply of workers readily available for low wage positions. This, in turn, exacerbates low wage earnings.

This is not the case for all workers however…

Economist estimate a skill gap is present in the current labor market which is leading to an estimated 3.8 million jobs being available, but workers do not have the skills to fill them.  Fields such as energy, computer related or engineering are reporting significant starting salaries for workers due to the high demand of the field, but the relatively low supply of available workers.

When examining the changes in the reported unemployment rate there are some caveats that need to be taken into consideration. This is especially important when media outlets report such information to the general public.

This does not mean everything is doom and gloom, as some individuals may have a much rosier outlook than others.

Courtesy of NPR Business
http://www.npr.org/2013/07/30/207023896/u-s-job-growth-slows-a-bit-as-wages-shrink

Courtesy of NPR The Two Way
http://www.npr.org/blogs/thetwo-way/2013/08/02/208209836/u-s-unemployment-sinks-to-7-4-percent-in-july-jobs-report

Courtesy of NPR Planet Money
http://www.npr.org/blogs/money/2013/08/02/208078183/four-reasons-why-millions-of-americans-are-leaving-the-workforce

Courtesy of Marketplace Economy
http://www.marketplace.org/topics/economy/162000-jobs-added-unemployment-falls-74

Courtesy of Washington Post WonkBlog
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/01/this-graph-calls-the-entire-economic-recovery-into-question/

Courtesy of U.S. Inflation Calculator
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/

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