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WSJ: The ‘True’ Unemployment Rate? Try 12%


Factoring in the participation rate


Wall Street Journal
The official unemployment rate, currently at an unattractive 8.2%, understates the true weakness of the labor market, and regardless of how the government, markets and Main Street interpret the number, the weakness will, in the long run, make itself manifest.

The plain fact of the matter is fewer people, as a percentage of the population, are working today, and more importantly, there are more people who have left the labor force, possibly forever (whether or not it actually is forever is something being hotly contested; see: debate, structural vs. cyclical.)

That means fewer people to contribute to economic growth. Fewer people to pay taxes. Fewer people to help the U.S. earn its way out of a $15 trillion debt hole (if indeed anybody thinks that’s even possible.)

Consider for a moment what’s called the participation rate. This is simply a measure of the percentage of working-age Americans — who aren’t in jail or the military — “participating” in the work force; either people with a job or people looking for a job. It’s been falling since January 2007, when it stood at 66.4%. It slid to 65.5% in July 2009, as the recession was officially ending, and currently sits near a 30-year low at 63.8%.

If you applied the July 2009 number to today’s pool of potential workers, unemployment would be somewhere north of 10%. If you applied the 2007 number, unemployment would be 11.8%.