Issue of the week: The ‘real’ unemployment rate

Don’t be fooled, said Neil Irwin in WashingtonPost.com: “This was a very bad jobs report.” The Labor Department’s latest jobs data, released last week, look deceivingly positive—the unemployment rate fell from 7.4 to 7.3 percent and the economy added 169,000 jobs. “But in almost all the particulars, you can find signs that this job market is weaker than it appeared just a few months ago, and may be getting worse.” The only reason the unemployment rate dropped was because 312,000 fewer people were looking for work. And the department also revised its estimates of June and July job creation downward, slashing 74,000 positions from its initial estimates. “In other words, through the summer, hiring has been quite a bit shakier than it had appeared.”

The unemployment rate has become an almost meaningless number, said Felix Salmon in Reuters.com, and it “has never conveyed less information” than it does today. We should be paying attention instead to the labor participation rate, especially since the Federal Reserve has explicitly linked its “tightening monetary policy” to employment. You can be sure the Fed has been given pause by the high number of discouraged workers who have stopped searching for work. Last week’s job report “was bad, no two ways about it.” But at least now we know that it’s too soon for the central bank to even think about tapering off its bond-buying activity.

The Fed says it’ll start doing so if it sees a “substantial improvement” in the job market, said Nin-Hai Tseng in Fortune.com. And while it “hasn’t given much detail as to what ‘substantial improvement’ looks like,” this surely isn’t it. “Companies and governments aren’t shedding nearly as many jobs as during the dark days of the Great Recession, but they are also creating just enough jobs to keep up with population growth. Nothing more.” If this “is as good as it gets,” most Americans still have plenty to worry about.

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This certainly is a “puzzling” recovery, said John Cassidy in NewYorker.com. Discouraged workers aren’t unusual; in every recession people drop out of the labor force. “But once the economy picks up, they start sending out résumés, and the participation rate gradually picks up.” Not this time. After five years, the labor participation rate is still almost 3 percentage points lower—at 63.2 percent, down from 66.1—than it was when the financial crisis hit. If you counted discouraged workers, then the real unemployment rate “would be roughly 11.3 percent—yes, well into double digits.” In part this is because “the structure of the American workforce is changing.” Baby Boomers are retiring, and the number of women going out to work has plateaued. But that’s not enough to explain the current numbers—“the participation rate hasn’t just edged down, it’s fallen precipitously.” Structural factors tell only part of the story. What we’re seeing is “primarily the result of a soft economy, which led many people to stop looking for work.” A cheerily meaningless official unemployment rate offers them no solace whatsoever.