More on Unemployment

After my post regarding unemployment this morning, I had a lengthy conversation with a usually knowledgeable person who told me that the reason for the differences was mainly changes in the participation rate in the labor force. In other words, even though there were not close to enough jobs being created to even keep the unemployment rate from rising, the rate announced by the government declined because people were dropping out of the labor force. It seemed to me that this could not be the explanation for a change in the unemployment rate of nine tenths of a percent in the last four months, and it certainly did not explain why the Gallup readings were going in the other direction from the federal government number. As a result, I did a bit of sleuthing to see if this excuse makes sense.

The short answer is that the change is not due to labor participation rates. In November of 2010, the labor participation rate was 64.5% and unemployment was 9.8%. Four months later, the numbers for February of 2011 are 64.2% participation rate and 8.9% unemployment. The problem with these numbers is that a change in the participation rate of this magnitude would only account for a decline in the unemployment rate of about 0.1%, not the 0.9% reported by the government. Of course, there were jobs created during these four months, but the total is well below the number that must be created to account for population growth.

Simply put, something does not add up here. The federal government owes us all an explanation.