UNEMPLOYMENT / FEB. 03, 2015
version 4, draft 4

Why the Dropping Unemployment Rate is Completely Misleading

The job market in recent years has been seen as hostile as a rabid alligator with a high strung Chihuahua strapped to its head. Jobs have been lost and during that ebb we haven’t seen many new jobs created. At the moment, the unemployment rate is the lowest that we have seen in years, but are the numbers representative of what is really going on? Here is why the unemployment rate is completely misleading.

New jobs are being created, but people aren’t applying

This is a little caveat of the statistics presented to the public as many times they don’t include people that have been unemployed for an extended period of time. According to Forbes.com, even though the unemployment rate continues to drop so does the ‘labor force participation rate’. Those are the unemployed individuals that are actively trying to get a job. Again according to Forbes.com, in recent years the labor force participation rate has dropped to its lowest since 1978.

Those damn youngsters or those damn old fogies

There has always been a razor edge balance between the people leaving the workforce and the people entering it. You might have heard of the Baby Boomers generation, which is a significantly large group of the population. A quick analysis as to what Baby Boomers are: after the Second World War the people that fought the bloody conflict came back home (and in a blossoming economy) procreated like rabbits.  By the end of the 40s (from 1945 to 1950) 32 million babies had been born. That is almost as many born in the last 10 years of the 2000s. Now this huge generation is retiring en masse and the floorboards of the social security system are creaking under their girth. But that’s a different story for a different day.

This is the best case scenario; retirement is fine and a healthy economic trend. There’s a ‘but’ in there though. If this drop in unemployment is a result of a large part of the population retiring and a large part of the population not entering the workforce, then things are a bit more economically ominous.

Although a drop in unemployment is nice, it’s just not cutting it

For unemployment rates to come back to normal a total of 350.000 new full time jobs need to be created per month.  During the Reagan years after the 1981-82 recession, monthly job numbers were in the 350.000 to 400.000 regions and higher. In September of 1983 the job market created a whopping 1 million jobs. Furthermore, most post war recession periods lasted a couple of years. This has been the sixth year of high unemployment rates and recovery.

Jobs created are more important than a drop in unemployment rates

As it stands at the moment, 800.000 Americans have dropped out of the labor force and are not even counted as unemployed anymore. Former Obama adviser, Jared Bernstein, even notes that even though unemployment rates dropped, the employment actually fell. That’s like one of the Confucius sayings ‘does a falling tree make a sound when there is no one to hear it’ or something like that.

We would all like this economic situation to dissipate, but unfortunately at the moment we are still dealing with wave upon wave of effects as a result of the Great Recession. Hopefully in the near future we will see a necessary increase in jobs created and the decline of people leaving the work force because they are given no other option. 

 

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