Letter: Understanding the real employment rate in the United States
Published 7:01 am Sunday, October 18, 2015
According to news reporting you would think that the recovery from the Great Recession of 2008-2009 is over. The unemployment rate, according to the Bureau of Labor Statistics, is at 5.1 percent. This is lower than before the recession began in 2009. Great news! The problem is that that this number does not tell the whole story, even though these are the numbers that are reported in the news media.
First, let’s make sure we understand what it means to be “unemployed” according to the US Labor Department. To be unemployed you must:
1. Be out of work.
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2. Be physically and/or mentally able to work.
3. Actively seeking employment in the past four weeks.
So, using this criteria only 5.1 percent of the people over the age of 16 are without a job.
This is misleading because it does not count those people that have stopped looking for work. Many people having been unemployed for weeks simply stop trying to find work and seek governmental help. According to the formula above they are no longer employed.
The numbers we should be looking at, is what’s called the labor participation rate. The labor participation rate is the percentage of Americans over the age of 16 that are working. While this is not the perfect analysis of the workforce (it does not take into account people that chose not to work, retired people and those who are physically not able to work), it does give a more consistent number over the years to what our labor landscape looks like.
Currently the labor participation rate is at 62.4 percent. This means that 62.4 percent of people over the age of 16 are working in the US. This is the lowest this rate has been since 1977 (62.8 percent), the height of the economic crisis under President Jimmy Carter. Even if these percentages are close to the same, if we take into account the rise in population since 1977, we have more people out of the workforce than before World War 2. Approximately 120 million people are not working in the US today. That number was about 82 million in 1977. That does not paint a good picture of our “recovery.”
As we look at the economy and its recovery, we should not be fooled by an artificially low unemployment rate. It does not tell the whole story.