Free Markets, Free People
One more time: The unemployment numbers in context
Context is one of those tricky words for some. Because, when applied, it tends to trip up their attempts to shade news a certain way. Without it, they’re much more able to do their shading than when context is added to their formulation.
Take the unemployment numbers – the “official” unemployment numbers. We’re supposed to believe that everything is getting better because that number has come down from 10% to its current “official” level of 8.5%.
But when one digs into that number, it becomes apparent that one can only get to 8.5% if one is willing to write off over a million American workers who’ve somehow “vanished” from the labor force.
Or in other words, in context, with those workers being added back in as they should be, our unemployment rate is much higher than 8.5%. Dale has explained this many times. I’ve pointed it out a few times. Investors Business Daily does it this time:
In the 30 months since the recession officially ended, nearly 1 million people have dropped out of the labor force — they aren’t working, and they aren’t looking — according to data from Labor’s Bureau of Labor Statistics. In the past two months, the labor force shrank by 170,000.
This is virtually unprecedented in past economic recoveries, at least since the BLS has kept detailed records. In the past nine recoveries, the labor force had climbed an average 3.5 million by this point, according to an IBD analysis of the BLS data.
"Given weak job prospects, many would-be workers dropped out of (or never entered) the labor force," noted Heidi Shierholz of the Economic Policy Institute in her analysis of the BLS jobs report issued last Friday. "That reduces the measured unemployment rate but does not represent real improvement."
According to the BLS, the "labor force participation rate" — the ratio of the number of people either working or looking for work compared with the entire working-age population — is now 64%, down from 65.7% when the recession ended in June 2009. That’s the lowest level since women began entering the workforce in far greater numbers several decades ago.
That “labor force participation rate” hasn’t changed significantly. In fact, given our expanding population, it has probably remained at least the same. What the “official” number does is ignore the missing million plus workers and thereby misrepresent the true level of unemployment in this country. That official number also hides the real problem that IBD’s chart shows us – something unprecedented in past recoveries:
Labor force growth, as you might imagine, is one of the indicators of a recovering economy. Instead we seem to be in the middle of fooling ourselves that such a recovery is happening by viewing a falling “official” unemployment number as an indictor of progress in that area. I’m not sure how one can make that argument – in context, as provided by this chart.
IBD goes on to outline what this all means in the long run:
Not only does the shrunken labor force mask the real size of the unemployment problem in the country — since only those actively looking for work are counted as unemployed — it likely means that economic growth will be subpar going forward.
The weak job market has also helped depress wages. Real median annual household income has dropped 5.1% since the recession ended, more than the 3.2% decline during the recession itself — according to a new Sentier Research report.
The smaller labor force is just one of the problems with the current unemployment number. The other is that the jobs being created aren’t keeping pace with population growth. Since June 2009, the economy has added 1.4 million jobs, which is below the more than 2 million needed to keep up with population growth and far below the gains experienced at the same point in the previous 10 recoveries — which saw job gains average more than 4 million.
So, what has happened? Well there are all sorts of explanations being bandied about – Baby Boomers choosing retirement instead of seeking work, etc. But the fact remains, as IBD points out, “the labor force had been climbing until Obama took office. In fact, it peaked in May 2009, the month before the recession officially ended.”
That sort of dampens the “Baby Boomer retirement” explanation and leaves us again searching for an answer.
The whole point of this post, however, isn’t so much wrapped up in the answer, but the context of the problem. Or said another way, you’re being led down the primrose path with the “official” unemployment number and here’s why.
Context. A dirty word to those who would prefer to feed you false sunshine via their “official” numbers. But when you look at their numbers remember that you’re mostly looking at contextless nonsense.
Oh, and if you’re not depressed enough:
The Economic Policy Institute calculates that when you add the number of jobs lost in the recession and the growth in the working age population over the past few years, the "jobs deficit," as EPI calls it, "remains well over 10 million."
There’s also the problem of people who want full-time work not being able to find it. The BLS offers a different unemployment measure that counts not only those currently looking for a job, but those who’ve given up looking, as well as those who are underemployed because of the soft job market.
That measure has unemployment at a whopping 15.2%.
But don’t look for this administration to ever tell you that.