Analysis Economics Politics Semantics

The Jobless Rate Is Not 3.5% It’s 37%

There’s a lot of happy talk about the incredibly low unemployment rate these days but it’s a misleading statistic. As Erik Sherman explains in an April 2018 op-ed for Forbes Magazine, “the unemployment rate is the ratio of the number of unemployed people to the total workforce, which itself is the sum of the employed and unemployed, which by legal definition only includes people who are actively claiming unemployment benefits.

This is why we wind up with reports from the Labor Department, like from April 2018 where they reported the number of jobs had increased by 164,000 while at the same time, the number of unemployed dropped by 239,000. Most people won’t even catch these discrepancies in the media rapids. But the occasional thinker might ask… How did 239,000 people get jobs if only 164,000 jobs were added?

And of course the most likely answer is that 75,000 people finally gave up looking for work or they are still looking after exhausting their benefits and are simply not counted anymore.

Sherman is suggesting that the employment-population ratio and the labor participation rate provide a better picture of the truth. That makes sense to me. Here is the data for November 2019, provided by the U.S.Bureau of Labor Statistics showing how the employment-population ratio and the unemployment rate fits in.

So when Trump brags about the lowest unemployment rate in history, he is only counting those 5,811 workers collecting unemployment. This low number probably has more to do with Trump cutting the funding for state unemployment programs thereby resulting in less people qualifying than actually generating real jobs for them.