The 7.8% Unemployment Rate is a Lie

by Nathan Harden - Fix Editor on October 5, 2012

On the campaign trail today, Obama is claiming that the economy is on the upswing because unemployment is the lowest its been since he took office. “This economy has come too far to turn back now,” he told a crowd of supporters in Virginia. What he isn’t saying is that last month the Labor Force Participation Rate–the percentage of Americans who actually have jobs–reached the worst point of his entire presidency.

Obama’s supporters are clinging to the latest jobs report like a political lifeline. The unemployment rate finally dropped below 8 percent, and that’s good for the president’s troubled campaign. But politics aside, does this actually mean that more people are working?

No, it doesn’t.

There are two ways for the unemployment rate to drop. 1.) New jobs. 2.) Unemployed people give up and stop trying to find work.

Guess which force is a bigger factor right now? Here’s a clue: the unemployment rate has dropped to 7.8%, despite the fact that the economy only added only 114,000 jobs last month (fewer than were added in each of the previous two months.)

The number of new jobs added each month is falling, yet the unemployment rate is also falling. What gives?

The Washington Post is reporting that, if you counted all the people who have simply given up looking for work since January, the unemployment rate would be 8.4% right now. That’s just adding back the folks who’ve given up looking for work this year.

If you count all the folks who’ve given up looking for work since Obama took office, the numbers are far worse. In that case the unemployment number would be close to 11%.

The economy isn’t looking up so much as people are giving up.

If you’re like me, you know a number of people, especially middle-aged folks, who have been looking for a job so long that they have simply lost hope and dropped out of the workforce. That’s the real reason the unemployment rate is 7.8%–a number that is still high by historical standards.

The 7.8% figure may be technically true, but held up as evidence of a rapidly improving economy, it’s a big lie.

Bottom line: the labor force participation rate is a much more informative number for measuring the state of the economy because it measures what percentage of Americans are actually working, and doesn’t ignore those who’ve simply given up hope of finding a job.

The current labor force participation rate is near historic lows. That may not be the message Obama and his supporters want to hear, but that’s reality.

Using the falling unemployment rate to boost his case for re-election is understandable, even if it isn’t entirely genuine. But Obama must be careful not to tout the positive numbers too loudly, lest he appear insensitive to the plight of millions of voters who are still struggling to make ends meet.

When Americans give up looking for work, it may make the unemployment rate look better; but it won’t turn this economy around. It’ll take jobs to do that.

Labor Force Participation Rate (Source: Bureau of Labor Statistics)

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2009 65.7 65.8 65.6 65.6 65.7 65.7 65.5 65.4 65.1 65.0 65.0 64.6
2010 64.8 64.9 64.9 65.1 64.9 64.6 64.6 64.7 64.6 64.4 64.5 64.3
2011 64.2 64.2 64.2 64.2 64.2 64.1 64.0 64.1 64.1 64.1 64.0 64.0
2012 63.7 63.9 63.8 63.6 63.8 63.8 63.7 63.5 63.6
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  • jrt600

    If every unemployed person gave up looking for a job today, the unemployment rate in this country would be 0.0%. Would we be any better off? Of course not.

  • HumanWrites

    This article argues that the latest drop may be do to
    large numbers of unemployed suddenly giving up this particular month…
    Does that make logical sense or do some prefer to believe it
    despite it being illogical?

    If
    “Labor Participation” during this time period, of this drop, was
    significantly DIFFERENT than previous time periods, only then might this
    post NOT be deceptive. The fact remains that IT IS DECEPTIVE because it
    presents a warped point of view, based on limiting the information and
    it displays a limited time frame, in order to deceive the reader: Please
    see all more relevant Labor Department time frames here: http://data.bls.gov/timeseries/LNS11300000/

    So
    again: The “The, 7.8% Unemployment Rate is a Lie,” article
    argues that the latest drop was do to large numbers of unemployed
    suddenly giving up this particular month… Does that make logical sense
    or do some prefer to believe it despite it being illogical?

    So
    it is with most of what the GOP is “selling” their constituents. And NO,
    the other side is not stooping to the same deceptive tactics. If that
    causes the Dems. to loose this election (God Hinder!), who should be
    blamed? Those who didn’t lie in order to win, or those who refused to
    recognize lie after lie when they saw them?

    • bobvans

      Do the math….. Forget the people dropping off the rolls. It takes 150,000 to 160,000 new hires a month just to maintain status quo. Adding 114,000 can not possibly move the needle more than a tenth of a point. Therefore, the only explanation is the size of the unemployment pool got smaller. Your logic is illogical.

  • http://www.facebook.com/michael.lanier.982 Michael Lanier

    There is a third way unemployment increases. At the start of an economic boom. This is because people join the labour market (give up studying, start a
    job hunt, etc.) because of the improving job market, but until they
    have actually found a position they are counted as unemployed

  • CalmSpasm

    “This article argues that the latest drop may be do to
    large numbers of unemployed suddenly giving up this particular month…”

    Obviously you are reading a different article. It does not say that at all.

  • http://www.facebook.com/profile.php?id=1061396885 Tim Marshall

    California still has to have their numbers added in so that 7.8% is not an accurate reflection of even the traditional unemployment rate.

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