Today’s official U3 unemployment rate is 8.2 percent. That, in and of itself, is bad enough. However, if you applied the July, 2009, number to today’s pool of potential workers, the unemployment rate would be above 10 percent. If you applied the 2007 number (when George Walker Bush was president), unemployment would be 11.8 percent. Those figures come from The Wall Street Journal, hardly a bastion of conservatism.
The U3 rate understates the true weakness of the labor market. Regardless of how President Barack Hussein Obama, the government, markets, or Main Street interpret the number, the weakness will make itself known. The official figure used by the Labor Department “leaves out a lot of people who’ve just given up,” said Aparna Mathur, an economist at the American Enterprise Institute. As economists examine the disappointing March, 2012, job numbers, just 120,000 jobs added, well below expectations, some economists say that U6 is the figure people should be focused upon because it includes all of those people who are too discouraged to look for work.
One of the biggest obstacles to an economic recovery has been the problem of long term unemployment. The number of long term unemployed, or those out of work for 27 weeks or more, has risen to 7 million, up from 1 million in 2007. About 43 percent of the 12.8 million Americans officially labeled out of work fall into the category of the long term unemployed, “which is huge, we’ve never seen those kinds of numbers in any recession,” said Aparna Mathur. The long term unemployed problem is reflected in the U6 rate.
Fewer people, as a percentage of the population, are working today. And there are more people who have left the labor force, possibly forever. That means there are fewer people to contribute to economic growth, to pay taxes, and to help the US earn its way out of a $15 trillion debt hole.
What is this thing called the participation rate? It is a measure of the percentage of working age Americans “participating” in the work force; people either with a job or looking for a job. It has been falling since January, 2007, when it was 66.4 percent. It fell to 65.5 percent in July, 2009, and currently is near a 30-year low at 63.8 percent. Why do we care? Because a lower participation rate means a lower U3 rate. Can anyone say, “cook the books“? The Bureau of Labor Statistics no longer considers as unemployed those workers without jobs who have not looked for work in the past year because they feel no jobs are available.
As a reference, British economist William Beveridge stated that an unemployment rate of 3 percent was full employment. Other economists have provided estimates between 2 percent and 13 percent, depending on the country, time period, and the various economists’ political biases.
But that’s just my opinion.