The September Jobs report published Friday by the labor Department was a deep disappointment. Only 96,000 jobs created in August, a pathetically small number, about a third fewer jobs than the monthly increase in the working age population.
President Obama and his supporters, hoping for a positive response from recession weary voters, rushed to the cameras to call attention to the apparent, slight improvement in the unemployment rate, down from 8.3% in July to 8.1% in August. [Continued below the chart]
But it turns out that the unemployment rate statistic is misleading.
As the chart above shows, the long, slow decline in the unemployment rate since it peaked at 10% in 2009 coincides with a an unprecedented decline in the labor force participation rate.
- 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.”
The chart above shows that since the unemployment rate began to fall from it’s peak in October 2009 millions of people – almost four million – who lost jobs are no longer classified as “unemployed.” They have been reclassified as “not in the labor force.” Excluding people from the labor force this way artificially lowers the unemployment rate. If they were still counted as in the labor force and unemployed, the August Unemployment rate would have been 10.4%
Thus, the decline in the unemployment rate over the past 34 months has been due entirely to reclassifying unemployed men and women as “not in the labor force.”
The chart to the left shows the first 34 months of employment recovery following the last recession. The labor force participation rate declined slightly but ended up just a tenth of a percentage point below where it began. Thus, the decline in the unemployment rate during this period was real, not a statistical deception.
The Labor Department began compiling these statistics in 1946. Since then there have been nine recessionary periods of job loses. The current recovery is the first time the labor participation rate has declined during the first 34 months of recovery.
The next chart shows the first 34 months of recovery after the recession President Reagan inherited in 1981. While the media relentlessly remind us of their opinion that President Obama inherited the worst recession ever, the data tell a different story.
The unemployment rate spiked up higher in 1982 than it did in 2009. In the early eighties mortgage interest rates soared to above 15% compared to about 4% today. One of the causes of the 1982 recession was a monetary crisis that drove inflation as high as 15%.
But the recovery from the 1980s recession was spectacularly successful because Reagan’s policies of cutting taxes and reducing the regulatory burden on investors and businesses released the economy to grow and create more jobs. The result was a much more rapid reduction in the unemployment rate coinciding with a dramatic increase in the labor force participation rate.
At the basic, philosophical level, Ronald Reagan believed in economic liberty while Barack Obama believes in the progressive dream of a powerful government directing and controlling the economy from Washington.
The last chart tracks the recovery that began in 1975. again, the participation rate increased at the same time the unemployment rate came down.