Monday, January 10, 2011

'True' Unemployment Rate at 11.7%

The unemployment rate stands officially at 9.4%. That is a fall of .4% from the previous month, but there is a reason I termed it a "fake fall". When most people think of the unemployment rate they intuit that to mean percentage of people not working who want to. That is technically not correct. People may want to work but after fruitlessly searching have just given up and will start again after they feel the economy improves. These discouraged workers are eventually removed from consideration for the numbers.

To try and add these people back in and get a 'true' unemployment rate, Tyler Durden makes calculations using labor force participation rates. He found a discrepancy of 3.91 million people, people that may be in that category of having given up. There are other possible reasons for that number including an increasingly aged population and an increasing trend toward people living off the state. Still, given the number of jobs created vs the employment rate fluctuation, it seems safe to say a solid majority resulted from people giving up. (via)

"While today's unemployment number came at a low 9.4%, well below expectations, the one and only reason for this is that the labor force in America has plunged to a fresh 25 year low. Assuming a reversion to the mean in the long-term average participation rate back to 66%, means that the civilian labor force, which in December came at 153,690, a drop of 260,000 from November, is in reality 157.6 million, a delta of 3.91 million currently unaccounted for. Maybe someone can ask Bernanke during his imminent presentation before Congress what happened to the unemployed population, which would have been 18.4 million if this labor force delta was incorporated, resulting in an unemployment rate of 11.7%."

Click over to the source to see the Labor Force Participation Rate graph.

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