Jun 03 2011
Major Update – Missed this key report:
The labor force — those who have a job or are looking for one — is getting smaller, even though the economy is growing and steadily adding jobs.
By the government’s definition, if you quit looking, you’re no longer counted as unemployed. And you’re no longer part of the labor force.
The percentage of adults in the labor force is a figure that economists call the participation rate. It is 64.2 percent, the smallest since 1984.
Their decision not to seek work means the drop in unemployment from 9.8 percent in November to 9 percent in April isn’t as good as it looks.
If the 529,000 missing workers had been out scavenging for a job without success, the unemployment rate would have been 9.3 percent in April, not the reported rate of 9 percent. And if the participation rate were as high as it was when the recession began, 66 percent, in December 2007, the unemployment rate could have been as high as 11.5 percent.
- end update
One of the major problems with the way the US calculates its unemployment rate is it bases it on the active workforce, which excludes people who gave up looking or asking for unemployment insurance. The fact is, in a steadily growing nation like ours, the available workforce population expands every year with population growth. This expansion is driven by young workers and new immigrants entering every year, offsetting those who retire.
Since 2000, when the Baby Boomers began retiring, the workforce expansion was very steady – growing each year by a near linear rate. That is until the recession hit in 2008, at which point the size of the workforce began to nose dive like rarely ever seen. You can see this clearly in the following chart, which shows the US workforce size every May since 2000 (blue curve – click to enlarge). Note that it actually took a year before hope began to be lost and people gave up and started to abandon the monitored workforce the government tracks.
I did similar charts for February and for January. The trend is clear. As the US Census just completed notes, our population has not shrunk at all, so neither has the available workforce pool. What has shrunk is the portion of the workforce being tracked by the US Government.
So is our unemployment really at 9.1% in May? Actually it is not. Since the workforce size is a nicely behaving linear number which grows as the population does, we can extrapolate what the workforce would have been without the 2008 Great Recession. That is the red line on the chart and it shows where the workforce level should be.
When you recompute the unemployment number (which is those working minus the total workforce pool) the actual, on the ground unemployment is at 10.5%. This is not guess work, because we know the workforce pool grows with population, and we know the population grew from 2000 to 2010. This is not theory. The actual number of the workforce pool may be off by a few percent, but no more than the government’s number is (all numbers have margins of error).
Worse yet, the real underemployment number (U6) is a heart breaking 17.3%. This number indicates those working at jobs below their normal capabilities, earnings, etc. It includes those scraping by in part time or low end jobs, or on the verge of disappearing from the general workforce.
These unemployment numbers are averaged over all age groups. The reality is acutely painful in the hardest hit groups of recent graduates, minorities, etc.
In our recent Holiday trip to an amusement park we were stunned to see how many seniors were working in the park. Folks well into retirement age hosting food lines, picking up trash, running games. It was stunning to see. Obama’s economic disaster is far deeper and more painful than the government is willing to let on, and the left wing news media is too afraid to discover.
It matters not. The same voters who came out in a rage in 2010 will be back again in 2012. They are living the actual reality. And since there is no silver lining in sight due to the liberal policy screw ups, I feel secure in saying there will not be a Democrat led component in government come 2013. And probably for years afterwards if the GOP can stay right of center and not tip over their own fringe cliff.