The Unemployment Rate Isn’t 5.3 Percent, and It Didn’t Drop in June

The official unemployment rate dropped from 5.5 to 5.3 percent between May and June, while the real unemployment rate rose from 11.7 to 11.9 percent.

How can I say that the real unemployment rate is almost 12 percent, even though the official rate is only 5.3 percent? Easily. Just follow this trail of definitions, provided by the official purveyor of unemployment statistics, the Bureau of Labor Statistics:

Unemployed persons (Current Population Survey)
Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

Unemployment rate
The unemployment rate represents the number unemployed as a percent of the labor force.

Labor force (Current Population Survey)
The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.

Labor force participation rate
The labor force as a percent of the civilian noninstitutional population.

Civilian noninstitutional population (Current Population Survey)
Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

In short, if you are 16 years of age and older, not confined to an institution or on active duty in the armed forces, but have not recently made specific efforts to find employment, you are not (officially) a member of the labor force. And if you are not (officially) a member of the labor force because you have given up looking for work, you are not (officially) unemployed — according to the BLS. Of course, you are really unemployed, but your unemployment is well disguised by the BLS’s contorted definition of unemployment.

What has happened is this: Since the first four months of 2000, when the labor-force participation rate peaked at 67.3 percent, it has declined to 62.6 percent:

Labor force participation rate
Source: See next graph.

Why the decline, which had came to a halt during G.W. Bush’s second term but resumed in late 2008? The slowdown of 2000 (coincident with the bursting of the dot-com bubble) and the shock of 9/11 can account for the decline from 2000 to 2004, as workers chose to withdraw from the labor force when faced with dimmer employment prospects. But what about the sharper decline that began near the end of Bush’s second term?

There we see not only the demoralizing effects of the Great Recession but also the lure of incentives to refrain from work, namely, extended unemployment benefits, the relaxation of welfare rules, the aggressive distribution of food stamps, and “free” healthcare” for an expanded Medicaid enrollment base and 20-somethings who live in their parents’ basements.* Need I add that both the prolongation of the Great Recession and the enticements to refrain from work are Obama’s doing? (That’s on the supply side. On the demand side, of course, there are the phony and even negative effects of “stimulus” spending, the chilling effects of regime uncertainty, which has persisted beyond the official end of the Great Recession, and the expansion of government spending.)

If the labor-force participation rate had remained at its peak of 67.3 percent, so that the disguised unemployed was no longer disguised, the official unemployment rate would have reached 13.1 percent in October 2009, as against the nominal peak of 10 percent. Further, instead of declining to the phony rate of 5.3 percent in June 2015, the official unemployment rate would have stayed hovered between 11.7 percent and 13.6 percent.

In sum, the real unemployment rate was 3.1 points above the nominal rate in October 2009; the real rate is now 6.6 points above the nominal rate. The growing disparity between the real and nominal unemployment rates is evident in this graph:

Actual vs nominal unemployment rate
Derived from SeriesLNS12000000, Seasonally Adjusted Employment Level; SeriesLNS11000000, Seasonally Adjusted Civilian Labor Force Level; and Series LNS11300000, Seasonally Adjusted Civilian labor force participation rate. All are available at BLS, Labor Force Statistics from the Current Population Survey.


* Contrary to some speculation, the labor-force participation rate is not declining because older workers are retiring earlier. The participation rate among workers 55 and older rose between 2002 and 2012. The decline is concentrated among workers under the age of 55, and especially workers in the 16-24 age bracket. (See this table at Why? My conjecture: The Great Recession caused a shakeout of marginal (low-skill) workers, many of whom simply dropped out of the labor market. And it became easier for them to drop out because, under Obamacare, many of them became eligible for Medicaid and many others enjoy prolonged coverage (until age 26) under their parents’ health plans.

*     *     *

Related posts:

Are We Mortgaging Our Children’s Future?
In the Long Run We Are All Poorer
Mr. Greenspan Doth Protest Too Much
Rationing and Health Care
The Fed and Business Cycles
The Commandeered Economy
The Perils of Nannyism: The Case of Obamacare
The Real Burden of Government
Toward a Risk-Free Economy
The Illusion of Prosperity and Stability
More about the Perils of Obamacare
Health Care “Reform”: The Short of It
The Mega-Depression
I Want My Country Back
The “Forthcoming Financial Collapse”
The Deficit Commission’s Deficit of Understanding
The Bowles-Simpson Report
The Bowles-Simpson Band-Aid
The Stagnation Thesis
Taxing the Rich
More about Taxing the Rich
Understanding Hayek
Money, Credit, and Economic Fluctuations
A Keynesian Fantasy Land
The Keynesian Fallacy and Regime Uncertainty
Why the “Stimulus” Failed to Stimulate
The “Jobs Speech” That Obama Should Have Given
Say’s Law, Government, and Unemployment
Regime Uncertainty and the Great Recession
Regulation as Wishful Thinking
Don’t Just Stand There, “Do Something”
The Commandeered Economy
The Burden of Government
Progressive Taxation Is Alive and Well in the U.S. of A.
Government in Macroeconomic Perspective
Keynesianism: Upside-Down Economics in the Collectivist Cause
The Economic Outlook in Brief
Is Taxation Slavery? (yes)
Taxes Matter
Economic Horror Stories: The Great “Demancipation” and Economic Stagnation
Economics: A Survey (also here)
Why Are Interest Rates So Low?
Vulgar Keynesianism and Capitalism
America’s Financial Crisis Is Now
The Keynesian Multiplier: Phony Math
The True Multiplier
Some Inconvenient Facts about Income Inequality
Mass (Economic) Hysteria: Income Inequality and Related Themes
Income Inequality and Economic Growth
A Case for Redistribution, Not Made
McCloskey on Piketty
The Rahn Curve Revisited
The Slow-Motion Collapse of the Economy
How to Eradicate the Welfare State, and How Not to Do It
The Real Burden of Government
Diminishing Marginal Utility and the Redistributive Urge
Obamanomics in Action (the first three graphs and related discussion)