Why Are So Many People Unemployed?

The unemployment rate (3.5%) and the number of unemployed people (5.8 million) have shown little net movement since early 2022, according to the Bureau of Labor Statistics. 

Among the major worker groups, the unemployment rate for Hispanics decreased to 4.6% in March, offsetting an increase in the prior month. The unemployment rates for adult men (3.4%), adult women (3.1%), teenagers (9.8%), Whites (3.2%), Blacks (5%), and Asians (2.8%) showed little or no change over the month. 

Among the unemployed, permanent job loss increased by 172,000 to 1.6 million in March, and reentrants to the labor force declined by 182,000 to 1.7 million.

Labor Market Imbalances

U.S. labor market imbalances are currently adding to inflation pressures and unemployment. Overall, labor market imbalance relates to employers' difficulty in satisfying their labor demands due to high turnover or shortages of workers with particular qualifications and the degree of unutilized labor supply. 

The extent of labor turnover is measured in terms of discharge and quit rates for the manufacturing sector and the degree of apparent shortages (primarily reflected in help-wanted advertising per employee) associated with particular unemployment rates. 

Notably, while the U.S. civilian labor force returned to pre-COVID-19 levels last year, it remains more than four million below the pre-pandemic trend. As of November 2022, the labor force participation rate is little changed and is still 1.2pp below pre-COVID-19. 

As measured by employment plus job openings, labor demand currently exceeds labor supply by around 5 million. This imbalance is unlikely to decline through a labor supply recovery, but the economic downturn expected in 2023 will likely result in lower labor demand through job losses and falling job openings.

Outsourcing

Outsourcing is hiring a party outside a company to perform services or create goods traditionally performed in-house by the company's employees and staff. Companies generally undertake outsourcing as a cost-cutting measure. 

But outsourcing isn't all good; it does cause some unintended negative consequences and affect many jobs, eliminating certain kinds of work. 

Manufacturing jobs are a prime example. Today, foreign factories produce much of what American companies make. Foreign outsourcing directly contributes to unemployment in the US. In these instances, the work has moved to another country, and another job doesn’t replace the outsourced job. Meanwhile, these unemployed workers find themselves looking for work in their field, and many must take lower-paying jobs instead.

‍Outsourced jobs are often more than the number of unemployed Americans. If all those jobs were to return, it would be enough to hire millions who are working part-time but would prefer full-time positions.