The Ugly Truth About the Unemployment Rate
America's Ghosts: How 14 Million Unemployed People Disappeared
February 3, 2017
The unemployment rate is calculated by a government agency called the Bureau of Labor Statistics (BLS). They begin by taking America’s total population and subtracting everyone who’s younger than sixteen, who’s in the military, or who’s “institutionalized” (in jail, asylums, or old folks homes). This leaves the non-institutional population, ie. everyone who can potentially work.
This population is then divided into two groups: the civilian labor force (people who have or want jobs) and those not in the labor force (people who can't find jobs, or who don't want jobs). The labor force is then sub-divided into employed and unemployed people. The unemployment rate is simply the percentage of people in the labor force who don’t have jobs but want one.
Officially there are 8.3 million unemployed people. So, how did they get this so wrong?
According to the government's rules, to be unemployed, you must actively search for work. In other words, if you stop sending out resumes or contacting employment agencies and then you drop out of the labor force, you are technically no longer unemployed - even if you stopped looking for work because there was no work.
This leads to some ridiculous distortions. For example, say you live in a small town whose economy is tied to the local factory. Now suppose the factory shuts down and half the town loses their jobs. If these people don’t bother looking for work (because there is no work), they are not officially unemployed. Officially they have dropped out of the labor force. Poof. No unemployment - even though a whole town is on welfare.
These are America’s invisible people.
How many people have been falsely dropped from the labor force? A lot.
To its credit, the BLS tries to account for this with its U6 Unemployment Rate, which includes the 8.3 million officially unemployed people, plus 6 million involuntary part-time workers, and 1.7 million “marginally attached” workers (people who send out the occasional resume).
This brings the real unemployment rate up to 9.7%, or 16 million people—almost double the official rate.
The BLS also tracks why people drop out of the labor force in a comprehensive national survey. In 2015 1.7 million people said they dropped out for “other reasons”. When looking at what these reasons were, it turned out that 1.5 million of them (88%) cited the fact that there was no work as the reason they stopped looking. Apparently “other reasons” is code for “there’s no work”.
This brings the running total up to 17.5 million unemployed people.
On top of that, millions of Americans claimed they dropped out of the labor force because they went “back to school”. Great, if it’s true. But it’s not.
When we check labor force dropout rates against actual school or college enrollment numbers, it’s staggering. For example: in 2014, 31% more teenagers claimed they couldn’t work because of school than in 2004. However, school enrollment only increased by 1%. The same is true for young adults (age 20-24): in 2014, 28% more of them claimed they couldn’t work because they were going to college than in 2004, but post-secondary enrollment only increased by 8.4%. So it’s safe to assume that the real reason most of them stopped looking for work was because there were no jobs.
This accounts for another 3.35 million people, which brings the running total up to 20.85 million unemployed.
Another major category that distorts the picture is disability claims. In 2014, fully 31.5% more people said they couldn’t work because of disabilities, but the number of disabled people only increased by 13.6%, according to the Social Security Administration. In effect, the job market is so bad, that 1.96 million people with often minor disabilities have been squeezed out of the labor force. Many are now chronically unemployed.
This brings our final total up to 22.81 million unemployed Americans (13.3%).
Keep in mind, this doesn’t include people who retired early because they couldn’t find work, nor people who are underemployed (think of all those people with college degrees working at Starbucks), nor illegal immigrants.
Millions of people are being denied their chance to work, to learn, and to contribute to the economy. Not only that, but more unemployed people means more social programs, which means higher taxes.
If we want to shrink government, we have to get people back to work. This should be our highest priority.