Real Unemployment

Back in December, I ranted about the tricks the Bureau of Labor Statistics used to show a huge drop in unemployment. Today's drop wasn't as big and it was accompanied by some good news (addition of 200,000 jobs) but it got me wondering enough to put together a true apples to apples comparison.

The economy began to go south in 2008 and about September or October (remember McCain's campaign suspension) is when the tipping point began. The labor participation rate had been holding at about 66% for the better part of two years. Starting in October 2008, the unemployment rate began to jack up significantly and the labor participation rate also began to go down. I decided to chart what the U3 unemployment rate would be if the labor participation rate was held constant (no magicking of jobs away because people stopped looking). I also started in January 2009 just so I could keep it simple over a solid three years. The labor participation rate in January 2009 was 65.7% (with a U3 unemployment rate of 7.8) and that was my baseline. At the moment it's 64.0% (but with a U3 unemployment rate of 8.5), which represents a base loss of about 2.5 million jobs.



Holding everything equal, unemployment should be at 10.9%. Now, some flux is to be expected with people retiring or choosing to leave the workforce for other reasons. However, much of that should be offset by new workers coming in so keeping a labor participation rate constant or close to constant is not unreasonable.

This is why I hate statistics and the inferences people choose to pull from them.