Unprecedented Jobs Crisis

They popped  Champagne corks at Obama-2012 HQ and the media cheered.  The Labor Department jobs report for February does look better than the grim statistics the Obama Administration first three years.  Employers added 227,000 jobs in February.  The January report was revised upward to 284,000, adding up to best two months since President Obama was elected.

While these new job numbers are an improvement over the past three years they are not  high in context of America’s historical job growth. We’ll provide that context in the next article.

The unemployment rate was 8.3% for the second month in a row.  This too is an improvement over the average of 9.3% during Obama’s first three years,  the worst three year period since the Great Depression of the 1930s.

We recession-weary Americans welcome any improvement.  But it turns out that the unemployment rate statistic is misleading.  As the chart above shows, the decline in the unemployment rate since the peak 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 millions of people – almost three 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 February Unemployment rate would have been 9.8%



The chart to the left shows the first 29 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 anomaly.

The next chart shows the first 29 months of job recovery from the recession of the early 1990s. Again the participation rate dipped slightly but ended up exactly where it began.

The Labor Department began compiling these statistics in 1946.  Since then there have been nine recessions that caused job loses.  The current recovery is the first time the labor participation rate has declined during the first 29 months of recovery.

Finally, this last chart shows the first 29 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.  In the years leading up to the 1982 recession inflation had been as high as 15%.

But the recovery from recession was spectacularly successful because Reagan’s policies of cutting taxes and reducing the regulatory burden on investors businesses allowed the economy to grow and create more jobs.  The result was a much more rapid reduction in the unemployment rate coinciding with an 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.

1 Comment so far

  1. Larry Walker, Jr. on March 11th, 2012

    Well apparently Obama’s anemic little recovery is over with now. The economy has been fixed on an unavoidable recession track since September of 2011. The last recession began in December of 2007 and actually ended in June of 2009, and since the U.S. averages a recession every 59 month’s, if we’re not already in one, it will most likely be revealed by November of this year.

    U.S. Economic Growth at 21-Month Low – Recession Due by November of 2012