Much was made of the drop in the unemployment rate as reported by the Labor Department on Friday, from 7.9 percent in January to 7.7 percent in February. When combined with an increase of 236,000 in nonfarm payrolls for the month, there was renewed optimism about an improving labor market, but a closer look at the data behind the declining jobless rate is cause for concern.
As has been the case many times over the last year or so, the drop in the unemployment rate was due primarily to people leaving the labor force and, importantly, many of these people still want a job.
Why are they no longer counted as “unemployed”?
Because, in the eyes of the government’s data collectors, if you haven’t looked for a job in the last four weeks, you’re no longer considered “unemployed”.
You’re considered to have removed yourself from the labor force, even if you still want a job.
Normally, this might not make much of a difference in the labor market data, but in an era of persistent long-term unemployment, today it does.
Per the Labor Department data, some 170,000 more people were employed in February than the month before, but 300,000 people left the labor force and this was the main reason why the jobless rate declined.
The increase of 170,000 in the number of “employed” people is not far from the growth of the U.S. population for the month and as a result, this number, by itself, did virtually nothing to reduce the jobless rate.
The vast majority of the drop in the unemployment rate was a result of people leaving the workforce.
So, what about those 300,000 people?
As baby boomers age, more and more people are finding a way to stop working for good, even in these difficult economic times. This accounts for some portion of the total and spouses who choose to stay home to raise the kids and those re-entering college later in life are also factors.
But, the majority of the these 300,000 people who left the workforce last month still want a job!
Again, according to the Labor Department’s own data (this one you have to do your own calculation), some 196,000 people were newly counted as “Not in the labor force”, but they still want to work.
This hardly seems like a reason for the nation’s “unemployment rate” to fall.
In fact, the category of persons “Not in the labor force who still want a job” has been consistently rising in recent years and, as shown below, if they were to be included in a more accurate calculation of the jobless rate, the picture would be decidedly different.
While the “official” jobless rate has fallen 23 percent from its late-2009 high of 10.0 percent, the broader measure of real unemployment has decreased by about half that amount.
All the data is right there at the Labor Department – all you have to do is add the people who still want a job but haven’t looked for one in the last month back into the labor force and count them as unemployed.
Of course, a jobless rate of 8 percent sounds a lot better than a jobless rate of 12 percent as shown above, so, you can imagine why there might be some resistance to this change in Washington.
With almost half of those unemployed seeing their condition persist for more than six months, it seems reasonable for them to take a month off looking for a job now and then, but that’s no reason to no longer count them as unemployed.