Tyler’s impressed that spending and output are up, but employment
isn’t.  But the simplest story is just that employment is becoming a lagging indicator.*  Consider: After the last “jobless recovery,” the unemployment rate still fell to 4.9% by the end of 2005. 

It seems a lot more helpful to explore why the lag between output and employment is increasing instead of speculating that 5% of the labor force has mysteriously become useless.  Your stories?

* If it wasn’t already.  Wikipedia names unemployment as a “coincident
indicator” but also says “The unemployment rate is a lagging indicator:
employment tends to increase two or three quarters after an upturn in
the general economy.”  Roubini said employment and unemployment were lagging indicators back in January of 2007.