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Just How Distorted is the U.S. Unemployment Rate Number?
Townhall ^ | 09/10/2013 | Mike Shedlock

Posted on 09/10/2013 7:18:23 AM PDT by SeekAndFind

On the first Friday of every month, I go through the jobs report and note the grossly distorted statistics.

For example, please see BLS in Wonderland written Friday, September 6 

Every month I conclude with a couple paragraphs like these: 

 Grossly Distorted Statistics

Were it not for people dropping out of the labor force, the unemployment rate would be over 9%. In addition, there are 7,911,000 people who are working part-time but want full-time work.

Digging under the surface, much of the drop in the unemployment rate over the past two years is nothing but a statistical mirage coupled with a massive increase in part-time jobs starting in October 2012 as a result of Obamacare legislation.
Wonderland Statistics

This past month I had a couple of extra paragraphs: 
 Compared to recent Gallup surveys, these BLS stats regarding the base unemployment rate and the alternative measures as well are straight from wonderland. For details, please see Gallup Says Seasonally-Adjusted Unemployment Climbs to 8.6%; Who to Believe (Gallup or the BLS)?

I believe Gallup. Thus, I expect more downward revisions in jobs, and upward revisions in the unemployment rate.
Let's take a look at BLS data to get a handle on what is happening, and why.

Civilian Labor Force Participation Rate

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

Explaining the Graph

  1. Women entered the labor force in huge numbers as two-wage earners per household became the norm
  2. An internet boom provided ample jobs for those who looked for jobs (and you have to look for a job to be a part of the labor force)
  3. A dotcom crash followed
  4. In response to the dotcom crash, the Fed blew the biggest housing and credit bubbles the world has ever seen, but the effect on the participation rate was small
  5. The housing boom turned to bust, but even in the recovery, the participation rate continued to decline

It's Not Demographics

Many people believe demographics explains the decline in the workforce. However, that's not the case.

To prove the point, let's focus in on an age group that is generally not retired and historically not in school.

Civilian Labor Force Participation Rate - 25 to 54 years

Notice how the participation rate of those 25 to 54 has been in steady decline since 
the year 2000 except for a slight uptick in the housing boom years.

Allowing 6-7 years after high school for college education, most of those 25 should be looking for a job or have a job. Yet the trend is unmistakable.

Rick Newman, writing for Yahoo Finance posted the following table in Here Are the Real Labor Force Dropouts.

Here is a chart I posted previously in Normalized Unemployment Rates; Cyclical vs. Secular Forces

Participation Rate by Age Group

Not in Labor Force Want a Job

To be in the labor force you have to want a job and look for a job. To be "unemployed" you have to be in the labor force. 

At the start of the recession, there were 4,648,000 people who wanted a job but were not considered unemployed. There are now 6,285,000 people who want a job now but do not have one.

That is an increase of 1,637,000.

Adding just the increase back would raise the labor force to 157,123,000 from 155,486,000. It would raise the number of unemployed to 12,953,000 from 11,316,000. And it would raise the unemployment rate to 8.2%.

But why stop there?

It's All In The Definition

The definition of "unemployed" is what it is (for political reasons), but by my more practical definition "you are unemployed if you want a job and do not have one", the corresponding numbers would be as follows:

Actual Employment

We can arrive at similar conclusions by looking at the number of employed. Once again the age group 25-54 is the most logical to study. (Total employment is not the best measure because of demographics, those over 60 retiring voluntarily).

Employment Rate: Aged 25-54: All Persons in the United States

Demographics sure does not explain that chart so something else must. The answer is threefold:

  1. Rampant Disability Fraud
  2. It Doesn't Pay to Work
  3. School: Kids stay in school for advanced degrees because there are no jobs, and middle-aged persons out of a job going back to school.

Rampant Disability Fraud

I have talked about disability fraud on numerous occasions. Here are a few examples:

Please read that last link above. It's a real eye opener.

Not in Labor Force With a Disability

I would love to show data pre-recession. Unfortunately, the data only goes back to mid-2008. We can see however, that nearly 23 million Americans are not in the labor force because of "disabilities".

I suggest "fraud" is more like it.

It Doesn't Pay to Work

The second reason the unemployment rate is artificially low is "It Doesn't Pay to Work".

I wrote about this recently in Why Work for $7.25 When Welfare Pays $15.00 in 12 States and $8.00 in 33 States? Is a Low Minimum Wage the Problem?


I hardly think hiding out in school because there are no jobs (when you really want a job) should constitute someone being "not in the labor force" (yet it does).

So What's the Real Unemployment Rate?

If you use my definition, "you are unemployed if you want a job and do not have one" then the starting point is 10.9%.

But what about those who do not have a job and don't want a job because of disability fraud or welfare considerations?

Factor that in and the unemployment rate would be several points higher, say 14-15%. 

However, that does not count another 7% who have a part-time job but want a full-time job.

So if you watch the unemployment rate drop month after month, and you think the number is grossly distorted and totally void of common-sense reality, you are absolutely correct.

Mike "Mish" Shedlock

TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: jobs; labor; unemployment

1 posted on 09/10/2013 7:18:23 AM PDT by SeekAndFind
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To: SeekAndFind

2 posted on 09/10/2013 7:24:06 AM PDT by null and void (I'm betting on an Obama Trifecta: A Nobel Peace Prize, an Impeachment, AND a War Crimes Trial...)
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To: null and void

Enough complaining.

Do something about it.

Hire Americans. Buy American.

Bring back US jobs.


3 posted on 09/10/2013 7:25:50 AM PDT by Cringing Negativism Network
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To: SeekAndFind

Lots of 55 year old Evil White Men still clinging to their jobs, guns and Bibles! (Labor Force Participation Rate Chart)

Warms my heart, actually! :)

4 posted on 09/10/2013 7:26:22 AM PDT by Diana in Wisconsin (I don't have 'Hobbies.' I'm developing a robust Post-Apocalyptic skill set...)
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To: Cringing Negativism Network

Hire me!

5 posted on 09/10/2013 7:29:58 AM PDT by null and void (I'm betting on an Obama Trifecta: A Nobel Peace Prize, an Impeachment, AND a War Crimes Trial...)
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To: SeekAndFind

And the media also does not trumpet high unemployment rates as evidence of the failures of this administration.

Lower unemployment rates than today’s, during the Bush years, for example, prompted the MSM to report at how people are suffering, etc. at alleged lack of job growth, how the economy was contracting, etc. The media do not report on any of this sort of thing anymore.

I can only conclude that because the media are liberal, they do not want to report anything which casts Obama and his policies in a bad light.

Media bias is not only putting a liberal spin on stories. It’s also deciding which stories to push, and which stories to simply ignore.

6 posted on 09/10/2013 7:30:39 AM PDT by Dilbert San Diego
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To: SeekAndFind

Obama’s plan to “Fundamentally Change America”. Believe it!!!

7 posted on 09/10/2013 7:35:40 AM PDT by Don Corleone ("Oil the the cannoli. Take it to the Mattress.")
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To: Diana in Wisconsin
Lots of 55 year old Evil White Men still clinging to their jobs, guns and Bibles! (Labor Force Participation Rate Chart)

This 59 YO doesn't have a choice: I've got an 11 YO son that requires care and feeding for at least another 11-12 years. Boy Scouts, athletics, and school keeps us busy (and young, I might add).

8 posted on 09/10/2013 7:40:05 AM PDT by Night Hides Not (The Tea Party was the earthquake, and Chick Fil A the tsunami...100's of aftershocks to come.)
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To: SeekAndFind

The US Unemployment number is tortured so much that the UN is considering intervention.

9 posted on 09/10/2013 7:50:45 AM PDT by Personal Responsibility (Government: Slimy used car salesmen writing laws forcing you to buy their cars)
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To: SeekAndFind

As Bush 1 said ‘it’s all smoke and mirrors’.

10 posted on 09/10/2013 8:05:51 AM PDT by BluH2o
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To: Night Hides Not

We are in a similar situation.... with a 14 year old. Mr G just hit 65. .... my age is a mystery.

Our complaint about the unemployment rate is that it doesn’t measure the self employed. We have both had our own businesses for many years, and both have tanked. Therefore we are both doing multiple other things to keep feeding and watering Jr. G. In fact both of our *industries* have pretty well shrunk to dang near invisible, and there are hundreds that we know who are scrambling to work anywhere they can find it. Neither of us is eligible for unemployment, so neither of us is measured in any way.

11 posted on 09/10/2013 9:13:47 AM PDT by Grammy (He frustrates the devices of the crafty, so that they cannot carry out their plans. Job 5:12)
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To: SeekAndFind


12 posted on 09/10/2013 10:15:20 AM PDT by Kaslin (He needed the ignorant to reelect him, and he got them. Now we all have to pay the consequenses)
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