Falling Unemployment Rate Is More Than A Little Misleading

Justin Haskins Heartland Institute
Published February 12, 2015

The Bureau of Labor Statistics (BLS) released its January 2015 report this morning, and on the surface the situation looks good for the Obama administration: 257,000 jobs were added in January, wages improved, and the number of full-time workers increased. The unemployment rate did go up by 0.1 percentage point, to 5.7 percent, but analysts agree this is the result of more Americans looking for jobs, not a slowing economy.

Although the BLS report presents multiple positive economic indicators, the truth is that all of them, especially the unemployment rate, mask serious concerns about U.S. economic growth. When more precisely analyzed, it’s clear the economy is not improving nearly as quickly as President Barack Obama would have the nation believe.

One of the best indicators of this is the labor force participation rate (LFPR) — the percentage of the available population considered to be working or looking for work. One of the primary reasons the unemployment rate dropped so significantly from the 10 percent mark it reached at the height of the recession in 2010 is that the percentage of the population considered to be in the labor pool declined greatly.

The LFPR for January was 62.9 percent, the lowest participation rate for the month of January since 1978, and the number of Americans not in the labor force reached 93 million for the first time ever. Incredibly, there are now 12 million more people not in the U.S. labor force compared to when Obama first took office in 2009.

The mass exodus of Americans out of the workforce has undoubtedly helped improve unemployment figures, explaining why they show significant growth contrary to other economic indicators.

Average U.S. wages are another important sign the economy is not improving nearly as quickly as many of Obama’s supporters say. Since January 2009, average private hourly wages have increased from $22.00 to $24.22, just a little more than what was needed to match inflation over that period.

The 41 cent increase in wages from January 2014 to December 2014 was much less than what was needed to keep up with higher costs for consumers. According to the BLS consumer price index, “food at home” prices increased by 3.7 percent; the cost of gas services at home rose by 5.8 percent; electricity costs moved up by 3.1 percent; and the cost of medical care services increased by 2.4 percent.

All of these figures help explain why the U-6 unemployment rate — which measures “the total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force” — remains above 11 percent nationally.

In a February opinion piece posted on Gallup’s website, titled “The Big Lie: 5.6% Unemployment,” Gallup CEO and Chairman Jim Clifton wrote, “There’s no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.”

Clifton is 100 percent correct. Although the slightly improving unemployment rates mean very little, media outlets and politicians continue using and abusing them, hoping the lie will stick. So far, they’ve been successful — unlike the millions of people who have given up looking for work and are being ignored by the official unemployment rate and the media.

[Originally published at The Daily Caller]