Headline Jobs Numbers Vs Real Life

Virtually all of the reduction in the official unemployment rate from the peak of 10% in 2009 to the current 7.3% is due to reclassifying jobless people from “unemployed” to “not in the labor force.”

The latest jobs report didn’t get much attention as the political-media establishment obsessed over Syria.  The day it was published The White House triumphantly posted several “key Points” on its website including:

Private sector employment has risen for 42 straight months, with business adding a total of 7.5 million jobs over that period.

We’re suppose to be impressed.  But 42 months of job growth is not unusual. There were 45 straight months of job growth from 2003 to 2007.  There was continuous job growth for 86 months in the nineties, 84 months in the eighties and 57 months in the seventies.  Since 1950 seventy seven percent of monthly jobs reports have shown increases.

What is unusual this time is the agonizingly slow pace of job growth. 8-recoveries-aug-13

The chart above tracks every post recession job market since 1950 the same way the Obama Administration tracks the current job market, starting at the first month of growth after a recessionary period of job losses.  We’re living through the weakest of all.

Another “key point” from the White House:

The overall unemployment rate ticked down 0.1 percentage point to 7.3 percent, the lowest since December 2008.

This is textbook spinning, to make bad news look like good news.  Most Americans (those who don’t live in the booming Washington D.C. region) do not understand how the government unemployment rate could have come down when so many around them are still jobless.

The statistic that explains this gap between the official unemployment rate and reality on Main Street is the Labor Force Participation Rate, defined as the percentage of working age adults “in the labor force.” To be included in the labor force one must either have a job or qualify to be counted as “unemployed” by continuously looking for work.

People who have been unemployed for a long time tend to become discouraged and spend less time on job search activities and thus don’t qualify by government criteria to be counted “unemployed.”  Labor Department statisticians reclassify them as “out of the labor force,” the same category as stay-at-home parents, retirees, and anyone else who doesn’t want a job. 

From July to August almost half a million jobless men and women were reclassified and are no longer counted as “unemployed.”  If they were still counted the August  unemployment rate would have gone up to 7.5% instead of down to 7.3%

The next chart, tracking the labor force participation rate since 1980, shows a shocking decline over the past five years as millions have been reclassified from unemployed to out of the labor force.

Arc-of-participation-Sep13If the labor force participation rate were the same today as it was when in 2009 when the unemployment rate hit 10$%, today’s unemployment rate would be 9.8%.

If the labor force participation rate were the same now as it was at the end of 2008, the current unemployment rate would be 11.2%

 

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