Is The Unemployment Rate Really 9.4%?

First, a public service announcement…if you are either a UT alumni or a currently enrolled UT student, I am doing a FREE webinar on Tuesday at noon CST.  The topic is “Thoughts From an Extreme Moderate.”  I will discuss some of the current financial issues as well as the extremism that we see in US politics.  You can sign up at this link.

I have several presentations during the next couple of weeks.  As a result, I plan on posting several simple, short blogs each week.

We’ve all heard the good and bad numbers of the employment situation.  The good news is that the unemployment rate dropped to 9.4%.  We’ve created approximately 1.2 million jobs this past year according to the household survey.  The first time claims for unemployment insurance have dropped and are now close to 400,000.   Many people believe that we’re going to eventually have an explosive month (where several hundred thousand jobs are created).  The bad news is that we’re creating jobs at a very slow rate.  We still have close to 14.5 million unemployed people.  On Friday, Fed Chairman Bernanke repeated the idea that it could take four to five years for the job market to normalize.  The more inclusive unemployment rate (counting the unemployed, people who have accepted part-time jobs even though they want full-time work and people who are too discouraged to look for work) is 16.7% (one-in-six Americans).

I think that the most important number to examine is the participation rate (the percentage of the population which is part of the labor force).  Below, I have plotted the participation rate (simply measuring December of each year) since December 1997.  The participation rate obviously drops during recessions – as people drop out (they don’t describe themselves as looking for a job).  Yet, it’s probably reasonable to assume that the participation rate will return to the 66% – 67% range (unless the Fed continues to inflate the stock market and we’re all able to retire early…).

If the participation rate were simply 66%, our unemployment rate would be 11.7%.  If you really want to compare our unemployment problem to normal times (not to other bad times), this is probably a more reasonable estimate of our unemployment rate.

If the participation rate were 67%, our unemployment rate would be 13%.

Labor Participation rate

One final thought for the day…QUACK QUACK…BEAT auburn!  If I believed that Cam Newton didn’t know what his father was doing, I’d also believe in the Social Security trust fund.


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