The Real Unemployment Rate

One of the most persistent canards about the current "recovery" is that unemployment has been going down, which of course means that a higher percentage people have been getting jobs. Right? Wrong. The Economic Policy Institute recently issued an excellent brief refuting this and other false claims. I'm particularly interested in the unemployment rate, because it's so often repeated in MSM articles about the economy and Bush's overall performance.

According to President Bush, today's 4.9% unemployment rate is below the average rate of the 1970s, 1980s, and 1990s. Doesn't that mean we have a tight labor market?

Unfortunately, no, because the unemployment rate under today's circumstances is misleading as a gauge of tightness in the labor market. The unprecedented 26-month decline in jobs (from March 2001 to May 2003) followed by sluggish job growth ever since has caused many people simply to withdraw from the labor force. Only those who are actively looking for work are included in the calculations of the unemployment rate. However, the employment rate (i.e., the ratio of employed workers to the country's working-age population) provides a better gauge of tightness in the labor market for the 227 million people now of working age. The employment rate has declined from 64.3% in March 2001 to 62.8% in December 2005. If the employment rate had recovered to its March 2001 level, an additional 3.4 million people would be employed today. What's more, if the rate had increased by the average 0.6 point gain of previous cycles, 4.7 million more people would have jobs today

Basically, the Bureau of Labor Statistics is in a constant process of redefining the relevant variables. If the unemployment rate is too high, the BLS just removes the worst-performing individuals from the data. I'm sure they'd rather remove those people from existence, but their removal from the data set is second best. That's why the employment rate, which measures ALL eligible laborers, is much closer to what most folks would intuitively consider to be "unemployment." And that rate has been getting worse in the Bush regime.

If you click on the graph below, you can see the difference in employement rates between the current business cycle and the past four cycles. The sad little downward-pointing piece of spaghetti toward the bottom is our current cycle, whereas the black, upward-pointing line is the average of the four previous cycles.

Not as inspirational a result, eh?

Yet somehow it seems a little closer to how the gloomy economic reality of the Bush years actually feels to real people.

Tags:news and politics,bush ,unemployment