The Great, Obama Unemployment Rate Scam

Political communication in America is largely an effort to influence the perceptions of those who pay little attention to politics by stripping complex concepts and issues down to easily understood  statistics and simplistic soundbites.  In each of his first 33 months in office President Obama suffered because the easily understood Unemployment Rate remained very high.   But over the past four months it fell from 9% to 8.3% and Obama and his media supporters are making the most of it.  They tell us the economy has improved so much it is no longer an election issue and the President is no longer at risk of losing.

But it turns out that the Unemployment Rate statistic is misleading.  It turns out that another statistic, the “Labor Force Participation Rate” has also declined. [Continued below the chart]

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

Today, there are millions of people who want jobs but don’t qualify as “unemployed” by meeting government criteria and are thus counted as “not in the labor force.”  We know this to be true because, as the chart shows, the participation rate has steadily declined for three years.  Excluding people from the labor force artificially lowers the unemployment rate.

The chart above shows that the decline in the unemployment rate coincides with a decline in the labor force participation rate.  The next chart shows what would have happened to the unemployment rate if the labor force participation rate had not not changed since the beginning of 2009.  [Continued below the chart]

The last chart below tracks labor force participation and unemployment during the Reagan Administration.  The labor force grew by 9% or 15.5 million people during the Reagan years.  Participation grew from 63.9% to 66.1%.   This chart is the picture of successful economic policies that increased liberty and decreased taxes and government intervention in the economy.  Millions of new people entered the labor force but after the severe Recession Reagan inherited the unemployment rate declined because employers were able to replace all the jobs lost in the recession and hire the millions of people who entered the labor force.  Reagan’s unemployment rate was not artificially reduced by excluding millions from of the labor force calculation and he was rewarded with reelection to a second term by the largest Electoral College landslide in American history.