Karl Lucas

Elon University students and staff discuss the falling unemployment rates in America

The unemployment rates fell again last month, dropping to 7.5 percent – the lowest since December 2008. This would normally be cause for celebration, excitement, or at the very least a nice pat on the back. As it is though, these numbers can be somewhat skewed due to the rise and fall of the participation rate.

Unemployment figures in the US. Click on photo for more information

Unemployment figures in the US.
Click on photo for more information

“I think the unemployment rate is a numbers game, and not necessarily the best indicator of how the economy is doing,” said senior accounting major Joe Perron. “For example, based on what’s happened in the past five years numbers wise, labor participation rate is much lower than it was in, say, 2006. If you look at the raw data, between 10 and 12 million people have just dropped out of the labor force.”

For those unaware, the participation rate is defined as those who are eligible to be in the labor force and are either working or actively seeking a job. In other words, those who are eligible but not seeking employment are not considered to be a part of the labor force. As it stands now, the participation rate is 63.3 percent, compared with the 66 percent that held stead during the years before the recession. These are the figures that keep Perron, among others, a bit apprehensive about what the lowered unemployment rates really mean.

“Yeah, it’s been worse in the past four years, and it’s getting slightly better,” Perron said. “But much of that can probably be attributed to accounting and labor participation rates.”

Senior finance major Trevor Cummings agrees that while the falling unemployment rate is encouraging, it doesn’t tell the full story since the labor force has diminished as well over the years.

“The government and people of America should be happy with the fact that it’s dropping so much,” said Cummings, “and I would definitely attribute that to the fact that we’re coming out of the recession a little bit. But there are also people dropping out of the market because they realize that maybe there are more beneficial opportunities to government support; maybe they don’t necessarily have to look for a job because they can live off some other way.”

The changing participation rate will inevitably lead to a changing unemployment rate, and it is this reason why some American economists’ believe the employment-population rate is a better indicator of a nation’s job market. This ratio takes into account all who are eligible in the economy, regardless of whether they’re seeking employment or not. The current employment-population rate is 58.6 percent, which has remained largely unchanged over the past year.

“See, that’s much more enlightening and representative of the actual job situation that’s out there,” said Davis Weidman, senior finance major at UNC-Chapel Hill. “Because a 7.5 unemployment rate doesn’t really seem that bad considering we’re just coming out of a recession and everybody’s freaking out about the economy. And just from my shortsighted, not-that-educated viewpoint, there are certainly more than 7.5 percent of Americans without jobs.”

Elon economics professor Curry Hilton shares his slightly-more-educated viewpoint, saying that yes, the unemployment rate can be slightly skewed from the exact reality, but it has also consistently provided an accurate account of where the economy has stood throughout history.

“The unemployment rate has always been a fairly decent indicator of our economy,” said Hilton. “It might not tell the entire truth to an exact decimal point, but it does a better job than most calculations. There has never been a point when the unemployment rate and the state of the economy have been very far off from each other.”

Unemployment rates of cities throughout the US. Click on map for more information

Unemployment rates of cities throughout the US.
Click on map for more information

In recent news that provides hope to even the strongest pessimists, the month of April saw the unemployment rate fall even as the labor force grew. An estimated 210,000 people joined the participation rate last month, while the unemployment rate dropped by .1 percent. With both figures heading in the right direction for the first time in a long time, Perron believes the economy is finally on the right path.

“I think a lot of it has to do with certainty,” he said. “We talk about this in accounting a lot: the more uncertainty there is, the less likely people are to hire. So, coming into the election, companies didn’t know if we were going to be under Romney or Obama; they didn’t know what the policies were going to be, if the taxes were going up or down, what might happen with Obamacare. Now that we have some certainty, companies are now saying, ‘OK, this is what we have, this is what we’re going to live with for the next four years, now we know what to expect.’”

In other words, whether companies like it or not, they at least have some security in policies in the near future, and they can decide with some confidence what their next move is going to be and who they want aboard their team.

“Certainty is a huge thing,” said Perron. “And I think a good portion of the falling unemployment rate is just businesses hiring more because they have a better plan of what they want to do.”

Cummings says the economy’s steady turnaround since 2008 not only explains the decrease in unemployment, but also offers significant hope of what is to come in the future.

“We’re definitely coming out of the recession and there is a bright light at the end of the tunnel,” said Cummings. “I mean, we’re hitting new highs on a daily basis in major indexes for companies in the US, so there is reason to be optimistic. You can see it in the stock market; the housing market is even starting to rebound a little bit. You can definitely sense it.”

Though Cummings says that the future is on an upswing, it might take a bit longer than people realize to see some real progress.

“We’re still transitioning between the recession and the place we want to be,” he said. “So maybe not so much this year or the next, but employment prospects should definitely look higher in the coming years.”

Carl Brunaes, a senior finance major, says he doesn’t see much reason for college graduates to be worried about their future employment. Brunaes, who is originally from Norway and plans to move back after graduation, says a bachelor’s degree from a school like Elon is enough to succeed in the current job market.

Carl Brunaes was offered a job with Live Oak Bank in Wilmington, NC

Carl Brunaes was offered a job with Live Oak Bank in Wilmington, NC

“I really wouldn’t be worried if I was looking for a job in the States,” he said. “I don’t think the economy is as bad as people make it out to be. I feel like most of the college graduates here, especially coming from Elon which gives you so many connections and opportunities, I don’t think they have to be worried at all.”

The idea of college graduates not worrying at all about their future may be next to impossible, but according to Perron there is a much more realistic goal, and one that will be beneficial to all those involved.

“We’ve set incredible standards for being able to sustain unemployment rates of four to five percent for entire terms of presidencies,” he said. “So I don’t want people to settle for the rates simply decreasing at a snail’s pace. Yes, it’s going down and that’s great. But it can be four or five percent and we’ve proven that in the past few decades. Now we just need to get back there.”