Friday, September 7, 2012

Why Does the Unemployment Rate Not Count the Unemployed?

This article discusses a peculiar aspect of the recently released Bureau of Labor statistics unemployment report:
Despite the fact that fewer Americans were employed in August than July, the unemployment rate ticked down from 8.3 in July to 8.1. That is because so many people dropped out of the labor force and stopped looking for work. The unemployment rate is the percentage of people in the labor force (meaning they had a job or were actively looking for one) who did not have a job.
In other words, from August to July less people were employed, but the unemployment rate went down. That's because when someone drops out of the civilian labor force, as defined by the Bureau of Labor Statistics, they are no longer counted in the unemployment rate. So, according to the BLS, if everyone in the United States stopped working and stopped looking for work, the unemployment rate would be a heavenly 0%.

Unfortunately, the article reports that this participation rate has been trending lower and lower.

The Bureau of Labor Statistic also reported that in August the labor force participation rate (the percentage of the people in the civilian non-institutionalized population who either had a job or were actively looking for one) dropped to a 30-year low of 63.5 percent, down from 63.7 percent in July. The last time the labor force participation rate was as low as 63.5 percent was in September 1981.
If you want more accurate measurements, I suggest going to www.shadowstats.com where John Williams diligently tracks both official and unofficial economic statistics. According to his broadest measure of unemployment, the current rate is about 23%!

And, this is not even taking into account a more important conceptual issue related to employment that I blogged about here in which the government counts as employed those engaged in complying with or enforcing arbitrary and counter productive government taxes and regulations.  Given actual statistics plus my definition of "real employment", the unemployment rate surely must be well over 50%.

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