The True Unemployment Rate: 36%
Workforce participation is the metric that really matters.
by John Hayward
02/20/2012
How would you define “unemployment?” Statistics on
unemployment are bandied around in the media all the time. Changes in
these statistics are hailed as good or bad news for the President, with
varying degrees of emphasis from the news networks, depending on which
party the President belongs to. But what do these statistics truly
measure?
Would you define “unemployment” as measuring
“people who want a job, but can’t get one?” This is, broadly speaking,
the definition embraced by the Bureau of Labor Statistics. The trick to
making those numbers dance lies in measuring “people who want a
job.” The widely reported U-3 unemployment metric, currently standing
at 8.3 percent, is very aggressive in shaving off people who have not
made recent efforts to find work. It is further distorted by massive
“seasonal adjustments,” which made over a million people vanish into
thin air last month.
This is why the official unemployment rate gets
lower when the American workforce contracts. Workforce contraction is a
very bad thing. People who simply cannot find work, and languish on
unemployment insurance for years, are the last thing a prosperous
country needs… but those people don’t count in the official
unemployment rate. For example, if everyone under the age of 25
abruptly stopped looking for work, it would be an economic disaster, but
the official unemployment rate would go down, because the pool of
people looking for work would get smaller.
(That’s not quite as far-fetched an example as it
might sound, incidentally. Even the heavily-massaged U-3 unemployment
rate currently sits at 23.2 percent for ages 16-19, and 13.3 percent for
ages 20-24… and it’s about two percent higher for young men.
Policies that increase the cost of labor, such as minimum-wage increases
and mandated benefits, have a particularly punishing effect on young
entry-level workers, since their labor has less intrinsic value than
experienced older employees.)
This is precisely what has been happening under
Barack Obama. The workforce is contracting with horrible speed, but it
has the beneficial side effect of making the official unemployment rate
go down a little, although 8.3 percent is still pathetic. The
Administration bounces happily before the cameras and announces its
policies are “working,” and job creation is now “on the right track,”
even as their best months post job creation only slightly in excess of
population growth – and they’ve only had a few such months. Pundits
begin wondering if the old political rules that say re-election is
impossible with unemployment over 6 or 7 percent might not apply to this
President, if he can campaign on a slowly declining unemployment rate.
Another side effect of the way our unemployment
statistics are prepared, and reported, comes when America's employment
picture is compared to the figures from other nations. Are the
unemployment statistics reported from, say, Greece or Italy calculated
in precisely the same manner as the American U-3 rate? If not, then how
can we make valid comparisons between them?
Since the concept of people who aren’t looking for work is so fluid, and some of those people have clearly been persuaded not
to look for work because of job-destroying government policies, it
might be more logical to measure unemployment using the standard
incorrectly offered by the Bureau of Labor Statistics for the U-3 rate:
“total unemployed, as a percent of the civilian labor force.” That’s
what the U-3 rate claims to measure, but it doesn’t, not by a long shot.
What is the current percentage of
working-age Americans, eligible to participate in the civilian labor
force, but not currently working? Answer: 36.3 percent.
That’s the worst labor participation rate in three
decades, and it’s part of the worst employment picture we’ve seen since
the Great Depression. Labor force participation is the number we should
really be looking at, even more than the unemployment figures cooked up
on the monthly basis by the Bureau of Labor Statistics. Those figures
have their uses as well, but it seems reasonable to measure the overall
health of the economy by the number of people who simply are not
participating in the labor force.
This would always be a much higher number than the
BLS unemployment statistic, even when the economy was humming along at
maximum power. There are always going to be working-age people who drop
out of the labor force, for reasons that have nothing to do with the
nation’s overall economic health. The labor force participation rate
hasn’t exceeded 67 percent in the past decade, so we would be looking at
a true “unemployment” number that bounces between roughly thirty and
forty percent. The difference between good and bad percentages is
relatively small, which makes the true “unemployment” figure less sexy
for news coverage, and therefore less useful to politicians… but it’s
more logical to measure small changes in a large, accurate number than
big changes in a small, largely fantastic number.
Writing at Red State, Rep.
Jim Jordan (R-OH), who chairs the House Subcommittee on Regulatory
Affairs, Stimulus Oversight, and Government Spending, offers an
eye-popping chart measuring the effect of President Obama’s “stimulus”
policies on workforce participation:
Jordan writes in support of the Jobs Through Growth Act,
a package of dramatic reforms that includes a flat tax with two low
rates, reduced corporate taxes, regulatory relief, and increased
domestic energy production. Those are the sort of changes America needs
to make, if we want to do more than fiddle with imaginary unemployment
numbers, whose very definition is subject to “adjustment” on a massive
scale. Those who define “unemployment” as “the number of working-age
Americans who aren’t working” should waste no time on small reforms.
John Hayward is a staff writer for HUMAN EVENTS, and author of the recently published Doctor Zero: Year One. Follow him on Twitter: Doc_0. Contact him by email at jhayward@eaglepub.com.
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