Behind 7.7% Unemployment: 3 Million Workers Disappear

Why are we only focused on the unemployment rate?  7.7% sounds so relatively good, and yet it hides that we have had 3 million– 3 million workers leave the US work force. 

When an economy is in decline, the suddenly unemployed seek work.  When an economy has been mismanaged for 4 years, 3 million of those who were seeking work give up.  This is what has happened in the United States.  This means they stop looking and retire, rely on a single income in a couple situation, and even sometimes falsely claim disability.  But they aren’t working, and they didn’t die.  They simply gave up.

To observe the effect of this on the unemployment rate, and to see what it has falsely boosted the President’s image on jobs, focus on this equation, in particular the denominator:

Unemployment Rate = Unemployed workers seeking employment divided by the total labor force.

So let’s say we have 100 unemployed workers, and the labor force is 1000 (100/1000).  Unemployment rate in this case is 10%.  But let’s say 20 workers get discouraged and stop looking for jobs.  The unemployment rate in this case goes to 8.2% (80/980).  Is this good?  Absolutely not!  Yet newspapers and liberal pundits will tout this 2% reduction as great news.

If you’d like to be on the lookout for real improvement in the job market– a critical measure of economic recovery– watch the numerator and the denominator.  Until that numerator stays the same and the unemployment rate falls, know that we are headed in the wrong direction.

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2 Responses to Behind 7.7% Unemployment: 3 Million Workers Disappear

  1. Drew McFadden says:

    Dan, your explanation doesn’t make it clear….if people stop looking for work, the number would be deducted from the numerator. the total workforce doesn’t decrease. the way I interpret your calc. says 100/800 = 12.5%

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