Nonsequitur: The Real Unemployment Rate

January 14, 2014

The official Unemployment Rate fell to 6.7% in December of 2013. But only 74,000 jobs were added last month, much less than the 150,000 or so expected. What’s going on? Basically, the unemployment rate measures how many workers have lost jobs IF those workers are actively looking for work. Anyone who has “dropped out of the workforce” isn’t counted. Anyone who is seeking to enter the workforce for the first time (like new college graduates) isn’t counted. How many workers would these two groups account for? Millions.

Take a look at this chart from the American Staffing Association:

unemployment

As you can see, in recent years, the unemployment rate has decreased as the employment index as increased. This is exactly what you would expect post-recession. This is what the official Unemployment Rate reflects. However, the Employment to Population Ratio has NOT rebounded post-recession. There are millions of Americans who are not working now and are not looking for work now. Some of these are retired by choice. But many are out of the workforce not by choice.

The ASA estimates, based on BLS numbers, that there are 22 million Americans who want work but can’t find it. This is an actual unemployment rate of close to 14%, or one in seven American workers.

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