06/13/2011 10:09 am ET | Updated Aug 13, 2011

A Different View of Unemployment

If you are out of a job, it sucks. We know that. But let's look realistically at unemployment as a problem.

Consider this: In order to make the math simple, let's assume that the current unemployment rate is 9%. And let's assume that "full employment" equates to a 5% unemployment rate. Many economists would agree with that. Arguably at any time, 5% of the workforce is relocating, is back at school, taking time off for family reasons.

So, given those two numbers, the "unemployment problem" is 4%... the difference between full employment of 5% and the current 9% rate.

Another way to look at that 4% problem is this: 24 out of every 25 people who want to work, have a job.

From all the rhetoric we read, one would assume that "fixing the unemployment problem" will fix the economy. And there is no question that it would help. But fix it? I'm not so sure.
Instead of looking at the 1 in 25 who is out of work, we should be thinking about the 24 in 25 who do have jobs. Arguably, it is what they do that makes up the vast majority of economic activity in this country.

What do we know about the 24? We know that they are uneasy because they may not be earning as much as they used to earn; they may not have had a salary increase for several years; a greater percentage of their income is devoted to health care as virtually all employers have shifted a larger percentage of health care costs to the employee; we know that they have suffered a real and psychological loss of value of their largest asset -- their home equity; we know that they are paying more for just about everything from a gallon of gas to a can of cashews. We also know that, wisely, they have reduced their debt and are reluctant to leverage themselves up again.

All of these are realities that contribute to a more conservative approach to spending on the part of the 24 out of 25 people who want jobs and have jobs. So we have to ask the question: given that these 24 are the ones driving the economy far more than the 1 in 25 who is looking for work, and given that these 24 are taking a much more cautious and disciplined approach to spending, do we really expect that getting that 25th person back to work is going to fix things? How is that 25th person having a paycheck going to change the spending psychology of the other 24? It isn't.

So we are probably in this economic malaise for awhile. Where is the good news?

Actually, there is some good news, and it is a direct result of the unemployment figure.

As a private sector employer, I know firsthand that the private sector has made tough choices over the past several years. Forced by financial realities, companies have laid off people, re-engineered, invested in labor saving technologies (which is why IT is the one sector what remains robust), and discovered in the process that they actually can do more with less. The result is that earnings have rebounded, and the realization that we were, collectively, over-employed and somewhat inefficient, has made the cuts of the past couple of years permanent. Perhaps that 4% who are unemployed today were employed but unnecessary in the past. So the good news is: we have increased productivity, which makes our businesses more efficient, more competitive in the global marketplace, and therefore, more sustainable.
Now, even the public sector is getting the message. Forced by hamstrung budgets, cities, counties, states and even the Federal government, are making cuts. And they, too, are finding that they can do the same, or more, with less.

Bottom line, our economy is more efficient, more competitive and more sustainable.

So, yes, let's be compassionate and sympathetic to those who are out of work. And let's do what we can to see if we can help them develop job skills to match the needs of the new-normal economy. But let's also understand that getting them to work is not going to fix the economy, and let's make darn sure we don't give up the productivity gains that the one positive, long term benefit of the past three years of economic downturn.