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Unemployment and the Labor Participation Rate Explained

Summary:

Unemployment isn’t the same as not working, 94 million people out of work (or unemployed, depending on the meme) is a reference to the number of people considered “Not in the Labor Force” Labor Force is a metric of Labor, but people not in the labor force are not considered unemployed.

unemployment

Labor Statistics can be a pretty large, daunting set of metrics. A lot goes into determining who is unemployed, and which metric of unemployment they fit into. There are 6 different measures of unemployment ranging form U1, to U6. For this article we’ll only be using U3 and U6, with U3 being considered the “Official Unemployment Number” ie the one they advertise on the news, in press releases, in government speeches, etc. and U6 which is the highest metric of unemployment , and considered “true unemployment” by economists and includes everything in U3 plus people who are unemployed but no longer on unemployment or no longer looking but still say they want to work (called marginally attached), people who work part time, but want to work full time (called part time for economic reasons) and people who are working for less than they normally would, or fewer hours but still full time (called underemployed). Read on for the details.

Labor Force Participation Rate

The Labor force is described as people who are 16 year old or older, not in the military, and not institutionalized (ie prison, mental facilities, etc). This statistic has been tracked by the Bureau of Labor Statistics since 1948.

The labor force participation rate is a comparison of people who want to work, and people who do not want to work, in it’s most simplified explanation. The people who want to work include both the employed, and unemployed. The people who don’t want to work include retired people, students, stay at home parents, or people who simply choose not to work. The current (as of June 2017) Labor Force participation rate is 62.8% which means that 62.8% of the adult non institutionalized population of the USA have or want a job (153 million people as of June 2017). The people who don’t want to work are described in BLS statistics as “not in labor force”.

The labor participation rate peaked (all time high) in 1999, after staying in the 58-59% range for 30 years, then in the 1970’s when the baby boomers were starting to join the workforce it started a steady incline, where it hit its peak of 67% in 1999. Those same baby boomers were now starting to reach retirement age.

The “not in labor force” has gone up every single year since they started tracking it in 1948, so you think unemployment has also gone up every single year since 1948. That includes when unemployment was record low, or dropping fast such as under Reagan and Clinton. The “in labor force” has also gone up every single year since 1948, including when there was recessions, unemployment skyrocketing, etc. In the 67 years it has been being tracked, the rate has fluctuated 8% from peak to peak.

From 1999 until 2008 the Labor participation rate fell 1%, and then from 2008 until 2012 another 2%, and 65% of that drop was baby boomers leaving the workforce. Most of the other 35% happened from the 2008 recession.

From 2012 until now, it has dropped another 2% to 62%, and 85% of that drop has been baby boomers leaving the workforce. baby boomers were the largest employed demographic age group in the US until 2010, and with 44% of them still employed, and the average age of baby boomers being 65 this year, the rate will drop even more in the next few year.

Which brings us to the image above, the 94 million people referenced in that image are the “not in labor force”, which as described above aren’t “unemployed”. Unemployed people are described by the BLS as people who want to work, but don’t have jobs.

Unemployment

The BLS uses 6 different measurements of Unemployment, from U1, to U6. U3 is called the “official” unemployment number, and is the one that the government and media tout as unemployment. U3 counts people who are unemployed and looking for a job, this is where the confusion in unemployment numbers begins. People who are unemployed and have given up looking for a job are called marginally attached to the labor force, and are included in the not in labor force statistic, because technically if they aren’t looking for a job they aren’t considered unemployed, but considered to be not wanting to work, since they aren’t looking. As of June 2017, U3 is 4.3%. Economists say that full employment is 5% or less of U3 unemployment levels.

U6 is considered by most economists as “true unemployment” because it counts the people who want to work but are no longer looking, as well as people working part time but want full time work. As of June 2017, U6 is 8.6%. Economists say that 9% or less of U6 is considered full employment.

Sources

Bureau of Labor Statistics


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