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The United States of Underemployment: Why the Wrong Jobs Propped Up Today’s Non-Farm Payroll Number


To say the October jobs report was a surprise doesn't begin to scratch the surface. Not only did the headline reading on this most-important economic barometer come in twice as strong as analysts were expecting, but the monthly snapshot of American labor has once again found a way to simultaneously encourage, confuse, anger and confound -- depending on where you look.

On the surface, the addition of 204,000 new jobs looks pretty good, in fact, it's statistically above the 190,000 average of the last twelve months. The fact that it came at a time when the government was shut down and its elected caretakers were within inches of defaulting on our debt makes it all the more, well, unbelievable.

"It's a weird report" says Zachary Karabell, the head of global strategy at Envestnet and founder of River Twice Research in the attached video. "It's people tending bar. It's lower wage retail jobs. It's lower wage health services jobs" that the economy is creating, and "a lot of these are not particularly well paid and they don't have a great future."

And that's a problem. Not only for the 14-million American who are still out of work and looking to get hired, but more broadly, it undercuts the entire economy.

"If you're earning $18,000 a year as a bartender, that's not going to translate into massive consumer spending," Karabell says.

Nor is it going to generate massive taxpaying either, which is needed more than ever to contend with the nation's burgeoning debt and deficit, including pricey new entitlement programs like Obamacare.

While the slow-but-steady decline in the unemployment rate, from 10% in 2009 to 7.3% today, has lulled some people into thinking things are almost back to normal, the fact is, it's a lot more complicated than a single number. Even members of the Federal Reserve have embraced this concept lately and have been trying to make the case for backing away from long-standing targets on employment and inflation that the central bank has used to drive its interest rate policy.

If all of this data and methodology feels daunting, you're not alone. After all, the highly paid Wall Street economists who are supposed to have a better handle on this than anyone, just missed the target (again) by a mile. In fairness, Karabell and others would say that it's not all the clear what we're aiming at anyways.

"We don't quite know what's okay and what's not," he says. "The fact is, we're not falling apart economically, but we just don't know what the optimal number is."