Pethokoukis, Economics, U.S. Economy

The Greatest Depression: Is the real unemployment rate 37.2% — or is it 44.5%?


The Drudge Report is linking to a Washington Examiner column by my old pal Paul Bedard that features this astounding insight from a financial pro:

Don’t believe the happy talk coming out of the White House, Federal Reserve and Treasury Department when it comes to the real unemployment rate and the true “Misery Index.” Because, according to an influential Wall Street advisor, the figures are a fraud.

In a memo to clients provided to Secrets, David John Marotta calculates the actual unemployment rate of those not working at a sky-high 37.2 percent, not the 6.7 percent advertised by the Fed, and the Misery Index at over 14, not the 8 claimed by the government.

Here is the headline: “Wall Street adviser: Actual unemployment is 37.2%, ‘misery index’ worst in 40 years”. Now what sort of mathematical and economic wizardry did Marotta use to arrive at the “real” unemployment rate of 37.2%? Prepare to have your mind blown as I reverse engineer his sophisticated calculations.

Marotta went over to the Bureau of Labor Statistics web site and found the current labor force participation rate, which is 62.8%. That number represents the share of the adult, non-military, non-jailed population who have a job or are actively seeking work.

Then Marotta subtracted that number from 100. That’s it. 100 – 62.8 = 37.2. Voila! Since 37.2% of the civilian, noninstitutional population is neither employed nor actively seeking working, then are “unemployed.” Hey, that’s even higher than the unemployment rate during the Great Depression! Doom! Gloom!


But wait, isn’t Marotta including as “unemployed” people who really aren’t in the job market such as retirees and college students and stay-at-home moms — as well as discouraged potential workers? He sure is — which is why the 37.2% number is absolutely ridiculous and tremendously overstates labor market weakness. A total joke. Using Marotta’s “logic,” maybe the “real” unemployment rate is merely the share of of the civilian noninstitutional without a job. That comes out to a whopping 44.5%! The Greatest Recession!

Now the current unemployment rate probably does understate job market weakness because of the sharp decline in the labor force participation rate. But there is lots of debate as to how much of that LFPR decline is due to demographics and how much is due to anemic labor demand. Maybe the “real” unemployment rate is 8% or 9% or 10%. But anyone who tells you it’s nearly 40% is selling the apocalypse. Indeed, Bedard notes that Marotta “recently advised those worried about an imploding economy to get a gun.” What’s more, I am guessing his take on the “real” inflation rate is similarly dubious. Drudge and the Examiner are pretty widely followed on the right. I hope this 37.2% number doesn’t metastasize into a GOP talking point. That would be embarrassing.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas

17 thoughts on “The Greatest Depression: Is the real unemployment rate 37.2% — or is it 44.5%?

  1. James, I have long followed John Williams and his “shadow statistics and while his numbers are not THAT high, I do believe they are much more realistic than the BS our out of control government is trying to convince us is “truth”

    Take a look at John’s numbers, which at 23% fall pretty much in between what Mr. Marotta is claiming and what the “official” numbers are?

    Dr. PDG, Jakarta, Indonesia

    • My favorite quote regarding shadow stats is from Paul Krugman who really can have a sense of humor:

      “Shadowstats doesn’t come cheap: currently, an annual subscription costs $175.

      Six years ago, an annual subscription cost … $175.”

      • Was this the Paul Krugman who called Socialist Insecurity a Ponzi scheme, or the one who said it’s not and deficits are completely irrelevant anyway, so keep spending?

        Paul Krugman really has little grasp of reality, much less economic reporting and statistics.

  2. If you’re trying to gauge the productive ability of the economy the number is NOT ridiculous. If you’re not working, the “why” doesn’t matter. People who don’t work are consuming wealth, not producing it.

    • Good point. Especially since Retirees draw benefits and put demands on politicians to maintain the status quo. Plus there are plenty of people that “retire” because they can’t find a job and plenty of people that work in there retired years.

      That being said though, it is a ridiculous statement considering historical “unemployment” tracked this way would be far worse prior to women entering the workforce. He’s describing labor participation rates, but changing the terminology to make an issue.

    • The number is ridiculous when you consider the policy response to Bedard’s ridiculous claim. Government can enact various policies to support the traditionally unemployed, those looking for a job but not finding one, but how do you get those not in the labor force working? Draft them into labor camps? Pull them out of retirement? The “why” certainly matters in this regard.

  3. The real unemployment rate is about 14%. This captures under- and unemployed individuals, but leaves out those “marginally attached” to the workforce.

    The 37% number is NOT ridiculous, in that it correctly identifies a potential percentage of productive workers missing from the workforce. This is a major driver behind the poor recovery.

    But it should not be taken alone.

    Bob Higgs:

    A better measure of the health of the job market is total employment: how many people have jobs. After all, it is employment that contributes to our well-being. Jobs, not unemployment, produce the goods, services and earnings that our families rely on. And on this front the picture is grim by historical standards, with 2 million fewer civilians working at the end of 2013 than at the end of 2007, when the economy began to tank.

    But even this doesn’t tell the full story, because while the economy and job market have been struggling, the population has been growing. This means that a smaller percentage of the job-eligible civilian population—that is, non-institutionalized individuals age 16 and older—has jobs.

    The employment-population ratio plummeted, of course, during the recession. While the economy has slowly inched its way back since hitting bottom in mid 2009, the ratio of employment to population has been stuck in the 58 percent to 59 percent range ever since—anemic by historical standards. In December, the employment-population ratio remained stuck at 58.6 percent.

    Bottom line, though, is current unemployment reporting and tracking is broken and meaningless.

  4. Folks, just a thought based on first hand experience during the early days of my career as well as that of a couple of my friends and relatives who are currently unemployed.

    Having grown up working construction, (1970- 1980) most winters were slow and I got laid off, collecting unemployment for 2-3 months each year. But did I sit around the house watching soap operas? No, I did carpentry jobs on the side (“under the table”) as well as had a fairly lucrative snow plowing route each winter.

    So what is my point? I suspect that MANY of the people who are currently collecting unemployment are also “fiddling the system” and are working “under the table”. I know I have a relative and a friend who have been and remain unemployed for many months and I can assure you that both of them are doing exactly the same as I did some 30 years ago…..

    Just something to consider when we look at the unemployment numbers and whether extending the unemployment benefits is or is not a wise move.

    Dr. PDG, Jakarta, Indonesia

  5. Marotta used the same method that was used to determine the unemployment rate during the Great Depression so as to have an accurate way of comparing the current situation with the past. At the height of the Great Depression, which occurred in 1933, the unemployment rate, determined by the same process as Marotta, was 24.9%. The fact remains that the current unemployment rate surpasses that of the Great Depression. What is more ridiculous is the idea that the 6.6% who receive unemployment benefits somehow provides an accurate picture of the amount of people who are currently out of work. The higher rate accurately depicts those who are unemployed, though the reasons for unemployment could only be determined by checking how many people receive disability payments, and add to that the amount of people who are retired and receive social security. The amount of those who cannot find work would be someplace in the middle between the two figures, somewhere around 20%, which means that 1 out of every 5 workers cannot find jobs, which fits also the current statistic for those households who receive food stamps at a rate of 1 in every 5 households. Progressivism is clearly killing jobs at an alarming rate. Many, many people who were once middle class are now working part-time, minimum wage jobs, which is why fewer teen agers are able to find jobs, and why people require social welfare programs to keep from losing their homes.

  6. Unemployment Is Really 14.3%–Not 7.6%

    Well, when Forbes steps out and justifies DOUBLE the official rate of the U.S. Bureau of Labor Statistics you know they a hiding a ton. I’ve been paying attention to ShadowStats, and I’m comfortable with their inflation calculations because they basically use how the government calculated CPI in 1990 and also in 1980. CNBC ran a great article on the story of how the fed changed the calculation in 1980 because the double digit inflation was freaking people out. Oh man! We are in trouble. They had a 100 year run, and just about put all the wealth in the hands of the .001%.

    (Anyone familiar with Shadowstats…can you tell us how the calculate the unemployment rate, it appears in the mid 20%, and if this can be legitimized?)

    All I can say is, regardless of the struggles and downright hatred (which I’ll never understand, unless you’re in the top 1/2%) thank God for Bitcoin! What Can’t Kill Bitcoin Makes Us Stronger!”

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