The hidden truth about the unemployment numbers

I spent some time looking at yesterday's government report about employment in the USA and came to a startling conclusion. The main driver reducing the American unemployment rate is that workers are just giving up hope and leaving the work force. I knew that this phenomenon existed, but until I did a closer look, I did not realize how bad the numbers really are. Let me explain.

Over the time that Barack Obama has been president, the percentage of the population that is in the workforce has declined by just about 2%. That 2% drop in three years is bigger than anything seen in the last 50 years. Indeed, during that 50 year period, labor participation rose by 6% even taking the recent drop into consideration. During the 8 years of the George W. Bush presidency, the rate was down but by less than 1%. the simple truth is that during Obama's time in office, there have been millions of people who just threw in the towel and stopped even looking for work.

So now let's look at the effect of this decline in the work force. These people who stopped looking for work are still out there, but they no longer get counted in figuring out the unemployment rate. It is easy enough, however to calculate what the unemployment rate would be if these folks had not despaired of finding a job and given up looking. The 8.6% rate reported yesterday would instead be 11.4%. That's correct, there would be an unemployment rate of 11.4% if you count the folks who just gave up looking.

What this means for America is not good. We have just seen a decline in the unemployment rate to a two and a half year low of 8.6 percent. While it is appalling that 8.6% could be the lowest rate of the last few years, it is even more upsetting that the only reason the economy got to that "low" rate is that about three million people just gave up looking for work. This is the true human disaster that afflicts America.

One final note, before someone starts explaining these numbers away as a demographic shift, you need to remember two important facts: 1) The percentage of the American population that is in the working age has been rising over the last three years, so the drop in the number of people looking for work is not the result of retirements. 2) The percentage of the labor force that has a college degree has risen in the last three years. College graduates have a much lower level of unemployment than those without degrees. The precise data is not available to me, but the number seem to indicate that those leaving the workforce are more concentrated among people without college educations. In other words, this phenomenon of people giving up looking for work is hitting the poor the hardest. Isn't it strange that Obama, who claims to care most about the poor, has been such a disaster for that group.