Economics, U.S. Economy

Why the official 8.3 percent unemployment rate is a phony number—and what it means for Obama’s reelection

The January jobs report is out and it seems pretty strong, at least superficially. The unemployment rate fell to 8.3 percent from 8.5 percent, the lowest rate since February 2009. And the economy added 243,000 jobs, the most since April 2011.

But does anyone believe an “official” unemployment rate of 8.3 percent really gives an accurate picture of the U.S. labor market? Even though the unemployment rate fell, so did the labor force participation rate (as more Americans became discouraged and gave up looking for work). Here’s what that means:

1. If the size of the U.S. labor force as a share of the total population was  the same as it was when Barack Obama took office—65.7 percent then vs. 63.7 percent today—the U-3 unemployment rate would be 11.0 percent.

2. But let’s not go all the way back to January 2009. In January 2011, the unemployment rate was 9.1 percent with a participation rate of 64.2 percent. If that were the participation rate today, the unemployment rate would be 8.9 percent, instead of 8.3 percent. As an analysis from Hamilton Place Strategies concludes, “Most of the shift of the past year is due not to the improvement in the labor market, but the continued drop in participation in the labor force.”

3. Now, to be fair, some of the decline in the participation rate is aging Baby Boomers dropping out of the labor force. But taking that into account still doesn’t get us very far, as HPS notes:

Demographic projections expect that participation rate to be at 65.3 percent. If that full participation rate is the goal, our economy is “missing” 3.8 million workers, up from the 3.4 million we noted in the white paper. The unemployment rate in that context has not budged at 10.4 percent.

4. Then there’s the broader, U-6 measure of unemployment which includes the discouraged plus part-timers who wish they had full time work. That unemployment rate is still a sky-high 15.1 percent.

5. If the participation rate does level off at its current rate, according to HPS, the economy would need to generate 231,000 jobs per month to get below 8 percent unemployment by Election Day. If the participation rate continues its downward slide, however, that number would be much lower—perhaps as low as 131,000 jobs a month (see below chart). But such a decline wouldn’t necessarily be good news.

Why is that? Because the unemployment rate would be falling because the economy remained weak with not many jobs created. That also means weak income growth, which is even more influential on presidential election results than the unemployment rate. If people don’t sense their own economic situation improving very much, it won’t matter what some distorted statistic from a government agency says about the economy. Or what Obama says, either.

One of the most accurate election forecasting models doesn’t even look at the unemployment rate. It looks at per person GDP growth, which correlates with income growth. If you plug a 2 percent GDP forecast for 2012 into the model of Yale’s Ray Fair, the algorithm predicts a close election, but still an Obama defeat with the incumbent president getting just 47.8 percent of the two-party vote.

Bottom line: The unemployment rate is dropping because economic growth continues to be so anemic that nearly 4 million Americans have quit looking for work and have been disappeared by the Labor Department. This still isn’t much of a recovery.

49 thoughts on “Why the official 8.3 percent unemployment rate is a phony number—and what it means for Obama’s reelection

  1. I don’t think you should just dismiss “aging baby boomers” who can’t get jobs. Social Security requires people to work till they are sixty-seven now and would like people to work longer. I wanted to work till I was older than I actually was when I retired. But the older you are the less likely you are to be hired. So that means the strain on the Social Security system will keep increasing. Maybe the numbers working till sixty-seven and seventy should also be considered when we consider unemployment.

  2. One has to be skeptical of historical presidential voting models,as an unprecedented number of Americans are “emotionally invested” in Obama. They, quite frankly, will give him a pass on anything
    and blaming it on Republicans.The media is firmly in the hopemongers pocket again and shows no sign of slowing down the propaganda machine. That said,independents may finally be waking up,aloowing for a close, if not, fair election come this November.

    • Working with a number of young people I don’t hear a lot of support for the president. He does have his devotees, but I think voting for him just because he’s the first Black president was a one time thing.

    • Many of the people who are emotionally invested in him are already dedicated Democrats. As a result, this election will be on par with those in the past, where the state of the economy in November will determine who the independents favor.

  3. You are under the impression that for the left or the media to report something as fact, it has to be true.

    Not so. For them, merely wishing something to be true is sufficient to qualify it as a fact.

    • John is absolutely right. The legacy media in this country stopped being apolitical decades ago; EVERYTHING they do these days has a political element attached to it. And if we hadn’t invented the Internet, they would be FAR MORE POWERFUL than they are, even now. They realized long ago their potential to make and control reality for a lot of people – and now they use it with no conscience involved in the process.
      This is why the left, the legacy media, and Hollywood have such a close relationship; they are literally the scorpion and the frog of the old myth tale for each other; they serve each other’s interests so closely when it’s necessary …but acknowledge that THEY ARE, AT THEIR NATURE, WHO THEY ARE – and that’s OK for them.
      One of the few saving graces citizens have left in this country is the fact that there are no longer just a handful of news and communications sources available; now, anyone with access to a computer can decide what is added to their knowledge, and what’s left at the gate.
      The programming that started early in school is very difficult to defeat for most people in the US; you need to be willing to UNLEARN and RELEARN and CHALLENGE EVERYTHING. Few people are strong enough to do it, few people see any reason TO do it.
      Welcome to America in the 21st century.

    • This snopes article does not contradict the above article. The Snopes article addresses whether the number of unemployed collecting benefits causes unemployment to be understated.

      The point of the article above is simply that further analysis (using numbers also provided by the government) gives a deeper understanding of the CPS-based numbers, showing that the denominator (total people who want to work full time) is shrinking faster than the rate at which people are retiring, which indicates they are simply dropping out of the labor force.

  4. Why do you glaze over the “sky high” 15.1% U6 number. It is high, but has also been on a declining trend. It includes all discouraged workers and part-timers who want full time work. It is the most comprehensive measure the BLS puts out. The U6 numbers are high but encouraging, that’s undeniable, unless you don’t believe the numbers coming out of the BLS. If we can’t agree on the official numbers, there is no basis for debate.

    One thing I don’t understand is why the MSM does not report the U6 number instead; the U3 number is so flawed and is almost useless.

  5. I don’t think that most in the press do more than read (or cut-n-paste) from either the US Dept of Labor report, or their local state reports. In most cases, that language is skewed to favor “their bosses”, ie, the party in power.

    Sadly, most reporters went into Journalism school ’cause there was no math involved… and it shows.

  6. We added 2.2 million private sector jobs in 2011. We have added 3.6 million private sector jobs since February 2010. While the unemployment rate is affected by work force participation numbers, that is not the only or even the primary reason that the unemployment rate is falling.

    • You’re not very good at math, are you?
      How many jobs did the private sector lose? The numbers you are using are not Net numbers. Go look up “Net” and see the definition.

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