03.09.2012 2

Understanding the ‘unemployment rate’

By Rick Manning — “The monthly unemployment rate has become a meaningless statistic that no longer reflects the reality of America’s economy or even the state of our nation’s employment.  Shockingly, the stated rate of 8.3 percent does not include the  4.4 million Americans who have dropped out of the labor force since Obama became president.   When you include the dropouts, the real Obama unemployment rate is 10.8 percent,”  Bill Wilson, President, Americans for Limited Government.

Each month, the Labor Department’s Bureau of Labor Statistics releases the unemployment rate to the breathless anticipation of economic analysts and politicians everywhere.  As Wilson points out above, what was once a pretty straightforward calculation has become the source of controversy about whether it is even still a valid economic indicator.

One thing is clear, the unemployment rate no longer accurately reflects the state of the U.S. employment situation as a stand-alone statistic due to its failure to include vast numbers of Americans who no longer are participating in the labor force as unemployed.

To understand how the Labor Department determines the unemployment rate for the nation’s non-institutionalized civilian population and put it into context is not difficult if you are aware of four pieces of the unemployment puzzle:  the non-institutionalized civilian population, the labor participation rate, the number of Americans who are employed and the number of people who classify themselves as “not in the labor force.”

There are obviously other very important statistics like the number of unemployed, which shows more than 12.8 million people who want a job and can’t find one cannot be underestimated in terms of the  human toll being taken by Obama’s failed economy.

Of the four pieces needed to find the real state of the U.S. labor force, the first is the civilian, non-institutionalized population.  This is the number of people who are 16 years of age or older, not active military and are not institutionalized.  The chart below focuses upon the Obama Administration’s time in office from January 2009 to February 2012.  As the chart below using Bureau of Labor Statistics data shows, in the three years that Obama has been president, the civilian population has grown by about 7.7 million people to 242,435,000.

Civilian Population

With 242.6 million potential workers, the Labor Department then figures out based upon a survey of approximately 50,000 households each month what percentage of these people are participating in the labor force either through actually working or looking for a job.  This percentage is known as the Labor Participation Rate.  The chart below provides the Labor Participation Rate throughout Obama’s tenure in office.  Note that the Rate has decreased by a full 1.8 percent of the pool of potential workers in just three years.  The tragic fact is that 4.4 million people have dropped out of the labor force since Obama took office.

Labor Participation Rate

The third component is how many Americans actually have jobs. These can be part time or full time. Astonishingly, in spite of an increase in the labor force eligible civilian population of 7.7 million, there are more than 100,000 fewer Americans employed today than were employed when Obama took office.

And the number of Americans who are no longer in the labor force by their own description has skyrocketed during Obama’s term from 80,502,000 to 87,564,000–an increase of more than 7 million people.

The reasons behind these seven million individual decisions are not known, however, an accelerating class of non-working Americans is obviously disastrous to our nation’s ability to compete economically in the world and puts an increasing burden on those who are employed to pay for the government services that these people disproportionately utilize.

So, when you hear about the unemployment rate going down, remember that fewer people are employed today than when Obama took office and the only employment statistic actually going down is the number of people who have hope that they will find a job in the Obama economy.

That is why Americans for Limited Government coined the term “real unemployment rate,” a term which describes what the unemployment rate would be if the Labor Participation Rate had remained constant throughout his time in office.

So, while Obama claims an unemployment rate of 8.3 percent, the real unemployment rate is 10.8 percent.  Because ultimately, Obama’s unemployment rate decreases are the perverse result of the destruction of American’s hope of finding work and their abandoning the workforce.

*Note:  All data is from the Bureau of Labor Statistics Employment Situation report.

Rick Manning is the Communications Director of Americans for Limited Government and the former Public Affairs Chief of Staff at the U.S. Department of Labor

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