Friday, April 06, 2012

Ignore the Government's Propaganda: The Real Unemployment Rate Is 10.9%

The American Enterprise Institute's James Pethokoukis uses the tools that legacy media won't bother with in their effort to regurgitate government propaganda. Which is to say: he uses arithmetic, logic, history and common sense.

Recall that back in 2009, White House economists Jared Bernstein and Christina Romer used their old-fashioned Keynesian model to predict how the $800 billion stimulus would affect employment. According to their model—as displayed in the above chart, updated—unemployment should be around 5.8% today.

But the true measure of U.S. unemployment is far worse:

1. If the size of the U.S. labor force as a share of the total population was the same as it was when Barack Obama took office—65.7% then vs. 63.8% today down from last month—the U-3 unemployment rate would be 10.9%.

2. But what if you take into the account the aging of the Baby Boomers, which means the labor force participation (LFP) rate should be trending lower. Indeed, it has been doing just that since 2000. Before the Great Recession, the Congressional Budget Office predicted what the LFP would be in 2012, assuming such demographic changes. Using that number, the real unemployment rate would be 10.5%.

3. Of course, the LFP rate usually falls during recessions. Yet even if you discount for that and the aging issue, the real unemployment rate would be 9.4%.

4. Then there’s the broader, U-6 measure of unemployment which includes the discouraged plus part-timers who wish they had full time work. That unemployment rate, perhaps the truest measure of the labor market’s health, is still a sky-high 14.5%.

5. The employment-population ratio dipped to 58.5% vs. 61% in December 2008. An historically low level of the U.S. population is actually working.

6. The number of long-term unemployed (those jobless for 27 weeks or longer) account for 42.5% of the unemployment. That number is basically stuck. It was the same, for instance, in August 2010 and last December.

As Tyler Durden noted a few days ago, governmental entities like the Bureau of Labor Statistics are about as trustworthy as a slip-and-fall lawyer who's hooked on crack.


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Matthew W said...

NObama said that this would be the new norm.