How to Reduce Unemployment Without Jobs

The labor Department reported the unemployment rate ticked up from 7.8% to 7.9% in January.  Most of the media marched in lockstep with the White House, emphasizing the other headline statistic, 157,000 jobs created in January.  While not enough to keep up with population growth that number was, as the loyal reporters chanted, “moving in the right direction.”

But it turns out that January’s small increase in the unemployment rate dramatically understates the depth of misery being caused by America’s unrelenting jobs crisis. [continued below the chart]

Barely mentioned in media reports was the reclassification of 170,000 people from “unemployed” to “not in the labor force” in one month, January.

  • The Labor Force is the sum of all persons who have jobs, plus all who are officially classified by government criteria as “unemployed.”
  • The labor force participation rate is the percentage of all working age adults who are officially counted as “in the labor force.”

The chart above tracks both the officially reported unemployment rate and what would be the “actual” unemployment rate each month if the labor force participation rate had remained the same since the Obama Administration began.

Today, there are millions of people who want jobs but don’t officially qualify as “unemployed” by government criteria and are thus not included in the monthly count of “unemployed workers.”  We know this to be true because the participation rate has steadily declined from 65.7% in January 2009 to 63.6% in January 2013.

Not including all unemployed people in the labor force artificially lowers the official unemployment rate.

The recent sharp decline in labor force participation is unprecedented.  From  2009 through 2012 is the worst four year period since the government began calculating the labor force participation rate in 1948. [Continued below the chart]

The second chart places the labor force participation rate into context by tracking it over the last three decades.

  • During the boom years of the Reagan Administration expanding employment opportunities drew millions of new people into the labor force.  The participation rate went up at the same time the unemployment rate went down.
  • Over the next 16 years the participation rate tracked within a narrow range between 66% and 67%.
  • After the end of 2008 labor force participation dropped precipitously as employment opportunities disappeared and more than five million people became discouraged and quit seeking jobs often enough for the Bureau of Labor Statistics to count them as “unemployed.”  The unemployment rate came down only because labor force participation declined.

The media have all but ignored this dramatic deterioration in employment statistics, presenting a very gradual, decline in the official unemployment rate as good news, without explaining that it covers up bad news.

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