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| unemployment (Photo credit: Sean MacEntee) |
The widely publicized unemployment rate, eagerly awaited each month by pundits and policy wonks, has become little more than a shell game in which officials keep the public guessing about the real state of the economy.
Since October 2009, the main unemployment measure has dropped nearly two percentage points, from 10 percent to 8.1 percent, yet the economic outlook remains dismal.
Median family income has dropped about 8 percent since the start of 2009; the percentage of recent college graduates who can't find work in their fields has skyrocketed, with some estimates as high as 60 percent; even the birthrate has declined, as young people struggle to get established.
Clearly, the unemployment rate is not telling the full story.
The labor force participation rate – which has fallen significantly, from 66.1 percent in 2008 to 63.5 percent today – tells us far more. That's because it includes everybody of working age, even those who have left the work force. The unemployment rate excludes such individuals, presenting a rosier picture than exists.
The most commonly used unemployment measure, known as U-3, is the percentage of the workforce that is unemployed and actively seeking work. Using this measure, when people drop out of the labor force they statistically disappear. The U-3 unemployment rate now hovers just over 8 percent. If those who have given up and have stopped looking for work were included, the unemployment rate would exceed 11 percent. Even the broadest measure of unemployment, U-6, fails to include the long-term unemployed who have been out of the job market for a year or more.
The labor force participation rate, on the other hand, measures the percentage of the working-age population currently holding jobs or seeking work. Using this measure, when individuals stop looking for work, they don't disappear; they remain in the working-age cohort.
Using the participation rate as the benchmark, therefore, would change policy makers' incentives, since the only way to improve this measure would be to increase the percentage of people working or seeking work.
Indeed, the focus on the unemployment rate masks the ineffectiveness of government "jobs" policies. Politicians can lower the U-3 rate – and make things seem better than they are – by making it easier for people to leave the workforce. ... Continue to read.
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