Will the real unemployment rate please stand up

Ezra Klein made an excellent point this morning – one that we’ve been making virtually every month since early 2009 – that the “official” unemployment rate is currently understating weakness in the labor market because job prospects are so bad that literally millions of would-be workers have given up looking for work or simply never began looking.  (Interestingly, the shrinkage in the labor force over the last two years has been occurring among the more-educated groups in the labor market but not amongst those with the least education.)

For the record, I don’t blame the Bureau of Labor Statistics for the shortcomings of the unemployment rate – they do a fine job of measuring the unemployment rate as it is defined (namely, as the number of people available to work who are not working but are actively looking for work out of the total number of people who are either working or actively looking for work in a given month). The problem is that the information provided by the unemployment rate is difficult to interpret anytime the labor force is not growing normally, like right now. However, BLS produces a number of other measures that can help round out the picture of the labor market at a time like this, including measures of underemploymentduration of unemployment, the employment-to-population ratio, and the number of people who experience unemployment at some point during a year.  All of these measures paint a much bleaker picture right now than the unemployment rate.

If I had to pick one, I think the best measure for assessing recent labor market trends is the employment-to-population ratio of 25-54-year-olds, which is simply the share of the age 25-54 population that has a job.  (I like using the 25-54-year-old population, because then we are certain that any trends we see are not being driven by retiring baby-boomers or increased college enrollment of young people, but the basic picture using the entire working-age population is the same.)

As the figure shows, the labor market plunged dramatically through the fourth quarter of 2009, and then, for the last two years, has basically bumped around at the bottom of that extremely deep hole. In other words, the improvement in the unemployment rate over the last two years, from 10 percent in the fourth quarter of 2009 to 8.6 percent today, is due virtually entirely to people dropping out of, or not entering, the labor force – not to a larger share of potential workers finding work. It goes without saying that that kind of improvement in the unemployment rate is not what we’re looking for.

Click to enlarge


  • Lenekerr

    It is intentional for political reasons to LIE about the unemployment rate and to have it blasted all over the corporate media….propaganda.

  • Marvin McConoughey

    Quite true.  It is also true that illegal immigration has had some effect, however resistant it is to accurate measurement.  This is most evident in certain occupational groups, such as construction workers,