Real Unemployment Holds at 8.8% in August, Unchanged Since April

September 5, 2015

During an interview with Hari Sreenivasan on the PBS Newshour last night, Diane Swonk, Chief Economist at Mesirow Financial was asked about today’s August jobs report.  Specifically, she was asked to comment on the drop in the unemployment rate to 5.1%, a level that Hari noted has traditionally been associated with “full employment.”  With a tone of cynicism in her voice, she responded by saying that, “yeah, but it sure doesn’t feel like 5.1% unemployment used to feel, does it?”  She then pointed out that, at that level of unemployment in the past, jobs were much more plentiful, the labor market was much stronger and wages were rising.  You don’t see that now.

The reason for that, of course, is how this administration has gamed the system to arrive at such a low unemployment level.  Instead of people being put back to work, they’ve arrived at that low figure largely by claiming that workers have dropped out of the work force, apparently having found some magical method of providing themselves with an income without working.  It happened yet again yesterday.  The unemployment rate is determined by the household survey, and is a function of the “employment level” and the size of the “civilian labor force.”  The employment level rose by 196,000, which is enough to have reduced the unemployment rate to 5.2%.  However, once again, the civilian labor force declined by 41,000 instead of rising by 115,000 along with the growth in the population.  Voila!  Another tenth whacked off of the unemployment rate!

Here’s why 5.1% unemployment doesn’t feel like it used to.  Look at these charts:  Per Capita Employment, Unemployed Americans.  Per capita employment, though improved, is still nowhere close to where it was before the recession.  And the number of unemployed Americans remains millions higher than it was.

A factual calculation of unemployment – one that grows the labor force in proportion to growth in the population – now has unemployment at 8.8%, exactly where it was in April.  The official unemployment rate has fallen 0.3% since April because not a single person has been added to the civilian labor force (according to the Obama administration) in spite of the fact that the population has grown by 900,000 people since then.

The difference between the official unemployment rate and the real unemployment rate (which grows the labor force along with the population) is what I call the “detachment from reality index.”  This index has risen steadily during the Obama administration and is now near its record high level.  Here’s the chart:  Detachment from Reality Index.  Doesn’t the current economy feel more like 8.8% unemployment than 5.1%?  Anyone who was in the work force more than ten years ago knows the answer to that question.