Conventional thinking about the current condition of the labor market is misleading.  That thinking is that unemployment is getting low, so low that it will pull discouraged workers back into the market to look for jobs.  They point to the low percentage of the population that actually has jobs, dropping from 63.4% in 2007 to 58.2% in 2010 although rising to 60.1% now.

The Republican viewpoint is that social programs, like unemployment & disability, are encouraging people to avoid jobs.  The Democratic viewpoint is that the decrease reflects the aging of our workforce.  Neither is correct.

Deeper analysis shows that the workforce contains more older workers (>54) than expected while the pool of discouraged workers (U-6 unemployment) contains more younger people that expected.   Normally, we stop counting people as eligible for work at age 55, even though many still hold jobs.  If included, the percentage of the population employed is about 62.2% — close to the 2007 high.  This is a relatively simple measurement issue.

Not so simple, the problem is the large number of young people in the pool of discouraged workers.  This includes people who work part-time jobs, because they cannot get full-time jobs.  It is a more complicated problem, because it is structural in nature.  It is a reflection of an out-dated educational system, with huge legacy costs, that prepares young people for 20th century jobs, not 21st century.  It is a reflection of a parenting system, where a child’s self-esteem is more important than his level of knowledge, and immaturity is unknowingly encouraged.  At this point, it is irrelevant what caused so many young people to find themselves in the pool of discouraged workers.  How do we get them out?

As the economy approaches very FULL employment, what companies can afford the training costs of hiring kids out of their parents’ basements?