After 42 continuous months of unemployment above 8 percent, the recent announcement that August’s unemployment rate fell to 8.1 percent from July’s 8.3 percent should sound like good news. After all, getting unemployment down to pre-recession levels is seen as paramount for the country to climb back into economic normalcy.
Unfortunately those numbers are misleading and fail to show the true depth of the chasm that is today’s job market.
What does a more accurate unemployment picture look like? The federal government’s Bureau of Labor Statistics (BLS) groups both the percentage of non-incarcerated working American adults and those who are unemployed but currently looking for work into a catch-all category termed the Labor Force Participation Rate (LFPR). While August’s unemployment rate fell from 8.3 percent to 8.1 percent, this only accounts for those that do not have a job and are actively looking for one.
The total LFPR, on the other hand, also decreased from 63.7 percent to 63.5 percent.
Put simply, that .2 percent difference of unemployed workers were removed from the unemployment percentage by quitting their search for work altogether.
This only adds to the rolls of discouraged workers who no longer actively search for a job, and thus lower the LFPR. Of course these discouraged workers are in their same predicament of unemployment, regardless of their governmental reclassification.
This disconcerting trend has continued throughout the recession and lackluster recovery, removing millions of Americans from participation in the labor market.
During the first official month of recession in December 2007, the LFPR was 66 percent, while today it stands at 63.5 percent of all Americans—a 2.5 percent difference (about 8 million people). Recalculating unemployment by using a pre-recession LFPR would deliver a startling 10.6 percent national unemployment for the month of August alone.
California fares even worse, with official unemployment reported at 10.7 percent. Assuming uniform LFPR across the country, that figure can be revised upward to 13.2 percent using the pre-recession LFPR.
Unfortunately, the picture continues to deteriorate. The BLS publishes another monthly figure, known as the U6, which includes all those unemployed, marginally employed, and those who work part-time but are searching for a full-time job. For August the national U6 unemployment rate stood at 14.7 percent, but using the pre-recession LFPR as before, can be revised upward to 17.2 percent.
Closer to home, California’s official U6 is a whopping 20.3 percent according to the BLS’s latest figures, which also rises when measured against the pre-recession LFPR. For college-age adults the figures are almost as bleak. Nationally 20-24-year-olds have a 13.9 percent unemployment rate and 71 percent LFPR.
The BLS does not keep track of the U6 for this subset, but it undoubtedly is higher than within the general population.
Of course, this wasn’t supposed to happen. The $840 billion American Recovery and Reinvestment Act stimulus bill passed in 2009 was touted by panicked politicians as the only way to nip this unemployment tsunami in the bud.
Government officials and ivory-tower intellectuals boldly predicted that with stimulus, unemployment never would crest 8 percent and would have settled now to somewhere around 5.5 percent. Unfortunately their economic tinkering never delivered its promised results and instead has led us further down the road to national insolvency.
Their predictions were wildly wrong and even their most pessimistic scenarios would be an improvement to today’s job market reality.