Real Unemployment

Ever wonder why the economy can have tepid jobs growth but have a relatively low "unemployment" rate?

Barry gives us an explanation today. It has to do with the so-called participation rate. This statistic measures the number of people who are employable, want to work, and are actively pursuing jobs. The inverse question is how many people are employable, want to work and have stopped looking for a job, i.e. given up for now? Here's what that participation rate looks like:


As you can see, it peaked during the Clinton administration and has been falling through the Bush administration. It had begun to climb, but the most recent report showed a dramatic drop in the participation rate.

Why does this matter? Because folks who don't "participate" don't get counted as unemployed:

It has since started heading lower again. They do not count in the "official" Unemployment Rate statistics. However, BLS actually does measure these folks in their "augmented unemployment rate" -- the jobless people who aren't counted among the officially unemployed. That measure is 7.4%.

So the real unemployment rate is actually 7.4%, not the headline 4.5% or so. That's how you can have lousy jobs growth and a good headline employment number .... you simply don't count a bunch of the unemployed!