June Jobs Report: Beware Underemployment and Underground Economy

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According to the June jobs report, the economy added 195,000 jobs last month, on par with the revised pace in May. Economists were looking for 165,000, and a dip in unemployment to 7.5%.

Despite the gains, the unemployment rate remained at 7.6% because more people hit the pavement looking for jobs--making it all the more difficult for job seekers.

Paychecks grew at a modest pace and have managed to beat (government-reported) inflation in the past year. Average hourly pay increased $0.10 to $24.01, up 2.2% from a year ago. Meanwhile, over the 12 months ending in May, consumer prices ticked higher by just 1.4%.

Leisure and hospitality (up 75,000) posted the strongest gains in June compared to recent months. But it is worth noting jobs in this sector tend to pay less than other industries.

In addition to the increase in low-paying jobs, here are seven things to consider when you evaluate how good the June jobs report really is:

  • The economy has created roughly 182,000 jobs a month over the last year, a stride that barely keeps in-step with the rising population. It's also well off the 250,000 jobs a month created during the hearty mid-1990s.

  • The employment-population ratio, the percentage of adult Americans who hold a job, has barely budged in the past three years. According to the U.S. Bureau of Labor Statistics, about 58.6% of the civilian population over the age of 16 holds a job, a rate that has remained constant since 2009. The last time it was this low was 1983.
  • The underemployment rate--a broader measure of joblessness that included people who stopped looking for work and part-time workers who prefer full-time jobs-- as well as unemployed, climbed to 14.3% from 13.8%. The number of "involuntary part-timers" jumped by 322,000 to 8.2 million.

  • The average workweek was unchanged at 34.5 hours. Employers classically boost the hours of existing workers before adding new hires.
  • Economic growth remains lukewarm, growing at a tepid annual rate of 1.8% in Q1, shy of what's need to quickly lower the unemployment rate. Also, economic woes overseas cut demand for U.S. exports in May, leading some economists to forecast slow growth in the second quarter.

  • A continuing trend was a reduction in government workers due to budget cuts. The federal government eliminated 5,000 positions in June. Over the last 12 months, it has slashed headcount by 65,000.
  • Many workers are dropping out of the labor force to join the "underground economy" - but while this move boosts income now, it sets them up for disaster down the road...

The Underground Economy Effect

This flourishing shadow economy is a $2 trillion grey market, reports the University of Wisconsin-Madison. It's composed of people who aren't on official payrolls, but get paid for work nonetheless. 

"It's important to note this is not the illegal economy," Yahoo! Finance senior columnist Rick Newman told The Daily Ticker. "We're talking about people who are doing legitimate work that would be ordinary work if it were taxed, but they're getting paid in cash."

Underground economies are typically seen in places like Brazil and southern Europe. But the tight job market and uncertain economic environment in the U.S. has spurred its growth here to double from 2009.

According to a study by Friedrich Schneider, a professor at Johannes Kepler University in Austria, the U.S. shadow economy amounts to nearly 8% of gross domestic product.

It also costs the IRS some $500 billion.

"People are running out of patience when it comes to finding a job and losing income," Laura Gonzales, professor of personal finance at Fordham University told USA Today. "So it's not that surprising to have workers take jobs that are in the shadow economy. But it's a sign of how bad things are and how we have to get the real economy moving again."

Who's living in America's underground economy? Check out the most popular jobs, as well as just how much it's costing the United States: What America's $2 Trillion Underground Economy Says About Jobs

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