Unemployment rate adjusted for labor force participation

Illustrating the magic of choosing one’s statistic carefully, today’s New York Times front page carries a story about how the jobless rate has fallen to a five-year low of 7%. Investor’s Business Daily, however, calculates unemployment at nearly a modern-day high of roughly 12% by holding labor force participation constant at the 2007 level (66% of working-age adults actually working). See “Labor Force Exodus Hides Nearly 40% of Hiring Shortfall”.

I was able to observe the statistics in action this week in Denver, Colorado. I stayed in a Marriott Courtyard on the 16th Street Mall. The sidewalks were populated by native-born Americans who had dropped out of the W2 workforce in order to panhandle. The hallways of my hotel were populated with Spanish-speaking immigrants who were being paid to clean rooms.

Related: my August 2010 posting about whether or not unemployed Americans today are like draft horses during the Industrial Revolution.

3 Comments

  1. presidentpicker

    December 7, 2013 @ 3:16 pm

    1

    For the last 20 years BLS does not include the so called “discouraged workers” in the unemployment report. No matter how well the economy does those guys just aren’t interested in getting a job. http://www.shadowstats.com/alternate_data/unemployment-charts

  2. Joshua Levinson

    December 8, 2013 @ 1:22 am

    2

    Is there any reason to think that 66% is the number to be thinking about, when it comes to determining full employment? Historically, it is still quite high. The Federal Reserve numbers go back to the late 40s, and have seen the rate go from 59% to a peak of 67% in the late 90′s. Even as the economy was booming in the years immediately following WW2, the rate barely topped 60%. And, that was with “real” jobs (i.e. actually making things), as opposed to services jobs or software jobs supported only my wall street shenanigans (I am a software developer, for the record).

    Civilian Labor Force Participation Rate

    Interestingly, even as the rate rose sharply from the 60′s through the 80′s, the rate for men more or less dropped continually, with a few plateaus in the 90′s and mid 00′s. The rate for women, on the other hand, rose continually or at least stayed steady. It was only 2009 and onwards that the rate for women began to drop.

    Labor Force Participation Rate – Men

    Labor Force Participation Rate – Women

    It could be that the participation rate was simple arbitrarily high, an overcorrection as we’ve gone from the stereotypical male breadwinner and female housewife to a world where both sexes could be the income-earners? Likewise, maybe we as a nation are saying that we’d rather spend more time at home and not have two working parents in each household?

  3. David Walker

    December 8, 2013 @ 3:53 am

    3

    Philip, just so you know, the pattern of falling unemployment with a low participation rate is typical of the early stages of an employment recovery in developed economies. When things start looking up, there’s a lag before people come back into the workforce. Actually, there’s mostly a lag before *men* come back into the workforce, as Joshua’s graphs above make clear.

    During this time, there is also a pattern of media outlets proclaiming that the recovery is not a real recovery because participation is lower than it used to be. I’ve seen this cycle several times in Australia, where it is slightly more pronounced than in the US.

    None of this is to say the US employment picture is very bright, or that the US is not going through its biggest slowdown since the 1930s. It’s now generally accepted that the bursting of asset price bubbles tends to hit an economy particularly hard, and the US right now is more evidence for that.

    Bear in mind that we also know two other things are happening to the participation rate separate from the cyclical changes caused by recessions.

    One is that demand for low-skilled non-service labour continues to decline relative to demand for low-skilled service labour. That is one reason why Joshua’s male and female participation rate graphs look different. My guess is that your panhandlers were mostly male.

    Another is that baby-boomers are starting to retire, whether by choice or because they lose a job in their early 60s. This means that all other things being equal, the participation rate will be falling for the next 20 or 30 years.

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