The Jury Talks Back

5/4/2018

The Reason the Deceptive Unemployment Number Is So Low

Filed under: Uncategorized — Patterico @ 7:37 pm

People who want things to be good are pointing to the fact that the “unemployment” number has fallen below 4%. Hallelujah! Everything is fixed! Right?

Wrong. As I pointed out again and again during the Obama administration, the key number these days is the labor force participation rate. As people drop out of the workforce, and give up looking for work entirely, they are not counted in the unemployment figure.

So, for example, in May 2014, the unemployment number had fallen to 6.3% — the lowest number since the financial crisis had hit. Was I thrilled? No, because the labor force participation rate had fallen to 62.8%. My reaction was this:

Yes, these jobs numbers should be good. But the net result is that they’re not. And it’s because government is strangling the recovery that is attempting to occur.

We enjoy a standard of living that would have been the envy of most kings in world history, due to the division of labor, which allows people to specialize in their area of expertise, contributing to better conditions for all. This president inherited a political system that already discouraged work, and made the situation multiple times worse, to the point where record numbers of people are choosing to simply say: “I’m outta here” — meaning that they will henceforth be a net drain on society’s resources, rather than a net positive. This means a lower standard of living for everybody — but the negatives are masked because the causality is hard to trace, at least for those not steeped in principles of economics, human action, incentives, and interference with the unhampered market economy.

Obama has failed. That’s what we were supposed to “hope” for, right? Well, congratulations. Your hope is now reality. And the “new normal” wipes out any gains that might otherwise accrue from what would normally be good news, because ObamaCare and other oppressive regulations create disincentives for work and productivity.

In July 2015, the unemployment rate had fallen to a seven-year low of 5.3%. Fantastic, right? No, because the labor force participation rate was at 62.6%, the lowest rate since 1977. I noted:

Remember: the availability of disability payments to healthy people has exploded under Obama. I am mystified that government policies incentivizing people to leave the workforce has the effect of causing people to leave the workforce.

So now, we have unemployment under 4%, and partisans are cheering — only this time, it’s different partisans. As usual, I am here to piss in the cornflakes. CNBC says:

The drop in the unemployment rate came amid another decline in the labor force participation rate to 62.8 percent, the lowest since January.

That’s the same number that I was in agony about in May 2014. Depressingly, although a tepid 164,000 jobs were created, CNBC also reports that “410,000 folks dropped out of the workforce, bringing the total to 95.74 million — a big reason for the dropping headline unemployment rate.”

The trendline on the labor force participation rate was straight down for Obama, and (with fluctuations) has been pretty much a flat line for Trump:

Screen Shot 2018-05-04 at 6.59.15 PM

In my view, the problems caused by Obama included ObamaCare, an explosion in disability payments, and passage of oppressive regulations — in that order of importance. We have not fixed ObamaCare. The omnibus did nothing to address the explosion in disability payments; if anything, they are set to increase, after a funding increase for the Social Security Administration, primarily to address a backlog of appeals of SSI denials. We are told that regulations have been cut, and the tax cut should help. But look at the trendline. So far, we’re treading water. A year and three months into the Trump presidency, the labor force participation rate is still dismal.

I hate to be the bearer of bad tidings — especially here, given my readership. After all, when I pointed this out during the Obama years, everyone understood I was looking past the headlines, and readers greeted my analysis with gratitude. Today, the same people are likely to find something to complain about in my analysis — even though I am making the exact same point, in the face of the exact same type of misleadingly cheery media stories.

We are not out of the woods, folks. And it doesn’t even look like we know where the pathway out lies.

1 Comment »

  1. I have long agreed with you regarding labor participation rates distorting unemployment numbers. And I think it’s still a very real issue.

    I agree with you on the three causes, though I think there’s a 4th; loss of good jobs to overseas.

    As for Trump, I certainly prefer the participation rate being flat to declining (as it was under Obama), but where it needs to go is up.

    The reduction in unemployment, coupled with a flat participation rate, is a good sign, but IMHO it’s only that; there is vast, vast need for improvement.

    Don’t worry about cheery media stories; the media are rediscovering the participation rate issue, which for some odd reason they had no interest in during Obama’s years.

    Comment by Arizona CJ — 5/5/2018 @ 4:03 pm

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