Tuesday, December 13, 2011

The True Unemployment Rate is 11 Percent, Not 8.6 Percent

Obama purposely manipulated the unemployment figure to sugar coat the reality that we face. This was not seen during the Bush Administration. During the Bush years, every individual and every job created were used to calculate the true unemployment figure. Under Obama, the Administration neglects to include those individuals who gave up looking for a job. Such manipulation will skew the unemployment figures. In all reality, the true unemployment figure should be 11 percent. I had to shake my head when Obama announced last month that the unemployment fell from 9.1% to 8.6%. I am surprise the president can say that with a straight face.

(Washington Post) Typically, I try to tie the beginning of Wonkbook to the news. But today, the most important sentence isn't a report on something that just happened, but a fresh look at something that's been happening for the last three years. In particular, it's this sentence by the Financial Times' Ed Luce, who writes, "According to government statistics, if the same number of people were seeking work today as in 2007, the jobless rate would be 11 percent."

Remember that the unemployment rate is not "how many people don't have jobs?", but "how many people don't have jobs and are actively looking for them?" Let's say you've been looking fruitlessly for five months and realize you've exhausted every job listing in your area. Discouraged, you stop looking, at least for the moment. According to the government, you're no longer unemployed. Congratulations?

Since 2007, the percent of the population that either has a job or is actively looking for one has fallen from 62.7 percent to 58.5 percent. That's millions of workers leaving the workforce, and it's not because they've become sick or old or infirm. It's because they can't find a job, and so they've stopped trying. That's where Luce's calculation comes from. If 62.7 percent of the country was still counted as in the workforce, unemployment would be 11 percent. In that sense, the real unemployment rate -- the apples-to-apples unemployment rate -- is probably 11 percent. And the real un- and underemployed rate -- the so-called "U6" -- is near 20 percent.

There were some celebrations when the unemployment rate dropped last month. But much of that drop was people leaving the labor force. The surprising truth is that when the labor market really recovers, the unemployment rate will actually rise, albeit only temporarily, as discouraged workers start searching for jobs again.