Pethokoukis, Economics, U.S. Economy

Is the real US unemployment rate 11.3% or 7.5%? A new Goldman Sachs study offers an answer


The 7.5% US unemployment rate, at its lowest level since 2008, seems to be telling a story of slow-but-steady recovery after the Great Recession and Financial Crisis. Unfortunately, the bulk of evidence suggests the “real” jobless rate is far higher. As the U-3 rate has fallen, so has the labor force participation rate, or LFPR. If the LFPR were at the same level as when the downturn began, the unemployment rate would be a stunning 11.3%.

Two critical questions: First, how much of the 2.7 percentage point drop in labor force participation since 2007 reflects structural forces rather than weak demand discouraging workers? Second, is the key structural element mostly the aging of the US population or is it the shift of the workforce into Social Security disability?

A new study by Goldman Sachs, partly based on recent Federal Reserve research, offers some reasonable answers. The real jobless rate is probably more like 9%, still dreadful. And here’s why:

1. Blame the baby boomers, at least somewhat. Of that 2.7 percentage point drop, 1.2 percentage reflects demographics — a number GS arrives at by plotting the overall LFPR against a rate that assumes an over-16 workforce not aging. So most of the drop in the LFPR is not due to the boomers.

2. The US isn’t Europe. Economists blame persistently high EU unemployment in the 1980s on the relatively easy availability of long-term jobless benefits. But Goldman doesn’t think the same thing is happening here, or at least nowhere to the extent as in Europe. Since 2007, the number of SSDI disabled worker recipients has risen by nearly 2 million, or 0.7% of the over-16 population.

Yet the rise in SSDI beneficiaries has only modestly outstripped the Social Security Administration’s pre-recession forecasts. Goldman: “Most of the growth in SSDI beneficiaries seems to be due to a larger and older population. … So while we would not rule out a certain amount of hysteresis, we expect it to fall far short of the European experience.”

3. The problem is mostly slow growth. So of that big drop in the LFPR, GS concludes, the remaining 1.5 percentage points — the equivalent of 3.5 million jobs — is mostly related to weak labor demand. (That’s where I get the 9% number.) As shown in a recent Fed study, labor demand shocks can have protracted effects on participation. There are lengthy lags. More typically, a big demand shock causes a sharp rise in the unemployment rate, which then reverses over the next three years. The LFPR falls more gradually and only begins to recover three years after the shock.

But not this time. GS: “The current labor market recovery has been much slower, as the unemployment rate has reversed less than half the trough-to-peak increase more than five years after the shock. The reasons are well known — a private debt overhang, excess supply in the housing market, fiscal headwinds, and spillovers from the financial instability in Europe.” So adjusting for the weak recovery in the labor demand explains most of the LFPR decline.

Going forward, GS expects the participation rate to remain flat. Demographic changes will offset recovering labor demand. (The bank doesn’t mention it, but I would also be concerned about the impact of the PPACA on the quantity and quality of job growth.) Given the GS forecast for GDP growth, we’re looking at a 6% unemployment rate by early 2016. But that improvement will understate the true weakness of the labor market, arguing for more aggressive policy action, particularly for the long-term unemployed.

15 thoughts on “Is the real US unemployment rate 11.3% or 7.5%? A new Goldman Sachs study offers an answer

    • So if any of you sheep read the real news you would know that the way they determine unemployment stats is by only counting the people who are receiving benefits. that excludes everyone else without a job. the real number is over 41% of america is unemployed. try some new sights. these will all lie to you.

  1. Actually demographics have squat to do with dropping participation.

    Based on the 2006 participation study, it should still be 66.2-66.4% with the rate dropping to 65.5% in 2016.

    Saying it’s now demographics is trying to hide the fact these people are “retiring” because there are no jobs.

    Goldman is clueless.

  2. GS is well known to be in Obama’s pocket. They had to show something higher than the “official” rate, or risk losing all credibility, but they’re clearly minimizing.

  3. Main Street knows that unemployment is still real, and that it’s more personal than statistics can tell. Main Street, it’s “intervention” time, because these people are part of your own communities! Bringing long term unemployed back to economic inclusion is also about regaining faith and hope in our economic future.

    • I was unemployed for 17 months. After being no longer on unemployment benefits, how was I still counted as unemployed when no longer able to register on s weekly basis.

  4. USEPA and USFWS Endangered Species Act must be changed before any economic recovery is possible. Remember “Shovel Ready” Obama’s right hand did not know what the left hand was doing and therefore his humiliation. You cannot turn a shovel full of Dirt, Soil, of Earthen Material in the USA because of these Agencies Permit requirements. Builders and new construction are non existant and will stay that way until the laws are changed and these agencies are fixed, neutered of just brought back to reality.

  5. O’Bozo is a well known puppet/teleprompter reading clown controlled by GS & JPM/Rockefeller puppet strings

    as has every president since 1913 but JFK who saw the corruption & did an about face issuing Ex order 11110..printing up 5 billion silver certificates in an attempt to override the private fed & was Dealey plastered in short order & the 5 billion silver backed notes kennedy issued were quickly taken out of circulation[not a good idea to mess with the Rothschild-Rockefeller central banksters ,as ol Abe ,Willy McKinley & Andrew Jackson all found out]1913 was the year of the birth of the PRIVATE 4 profit, parasitic,non-federal no-reserve money from nothing [chicks 4 free] currency counterfeiting CORPORATION..btw,the penalty for counterfeiting money as per the constitution? A: death

  6. Servicing creates steady reliable jobs. Every time a wind farm is built with servicing in mind, countless families now have a steady source of income for decades to come (not to mention thousands of homes now have a guaranteed source of power even if it is intermittent). Every time a residential wind turbine or rooftop Sun tracking solar array is installed, some one knows they will have a job servicing and inspecting the system when the next service cycle comes.
    Along with steady jobs comes steady business that then can generate steady taxation revenue streams. America is still not over this economic depression and frankly never will be if we can not figure out how to create reliable jobs. Renewable energy is truly the key to so many of our current problems.

    Renewable energy is truly the key to so many of our current problems.

  7. Is Goldman-Sachs looking for a government bailout or some sort of immunity regarding potential prosecution in the future?

  8. Unemployment.
    Technology Review ran an article “Is Technology eliminating more job than it creastes”. This is good reading for an education on what is going on in our economy. My thoughts are that the wealthy 1% control the use of Technology as well as an strong arm influence on the government to do what they command. The advances in Technology are being used against we the people. In the near future, it has already started, Robots and other automation will eliminate many jobs. The 1% will not allow for a work week reduction to 30 hours to spread the remaining jobs to benefit all, as it would drive up prices. The middle class is stuck in the middle, so to speak, with no way out! God save us from ourselves.
    Have a great day!
    Best Regards

    • Technology is eating the u.s. jobs alive any where it can. You have nailed it right on the head. But with many people half asleep to whats going on it does not look good.

      • “The middle class is stuck in the middle, so to speak, with no way out!”

        “Technology is eating the u.s. jobs alive any where it can.”

        If these statements were true, then one possible answer would seem obvious to me: Socialism. The entire logic of the free market revolves around the efficient use of resources, labor included. If labor ceased to be, in any sense, a scarce resource, then its efficient use would cease to be a major concern. The historical precedent used as an argument against the adoption of anything even hinting of Socialism in any way – that of the Eastern bloc countries (with the experience of Sweden conveniently ignored) – would not apply, because automation never approached the point of rendering the working man obsolete during the Soviet era.

        The logic of Capitalism would break down, under these circumstances. To continue to cling to it would be unconscionable. But are these, indeed, really the circumstances? Are people pounding the pavement for years on end because there is no work to be done, or because the people refusing to hire are enjoying that little rush of power that they get from holding another human being down in inescapable misery?

        I refer, not to anybody running a fortune 500 company, but to the nobodies working in Human Resources, answering to their employers in theory, but in practice being able to get away with murder.

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