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Participation Historical Paterns: The unemployment rate today would be 9.3%

Some people — notably Republican presidential candidate Mitt Romney — have argued that to get the “real” unemployment rate, we should add back all the people who have left the labor force and consider them unemployed. Doing that gives an unemployment rate of around 11%, depending on what month you choose for a baseline.

But adding back everyone who’s left the labor force makes little sense….

The trouble with that logic is that people have always left the labor force during tough times. If the “real” unemployment rate is higher than the official rate now, it was also higher in past recessions. The big advantage of the unemployment rate, whatever its shortcomings, is that it’s used a consistent definition for decades. 7.8% might not be the “right” rate now, any more than 10.8% was the “right” rate in 1982. But as long as the definitions don’t change, the two should be comparable….

If, using a model, we add those people back the labor force as unemployed workers, the unemployment rate today would be 9.3%, well above the official rate of 7.8%, but also below Mr. Romney’s 11%….

Choosen excerpts by JMM from:

via Number of the Week: Accounting for Dropouts in Unemployment Rate – Real Time Economics – WSJ.

Discussion

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  1. Pingback: US / Why Is Labor Force Participation Shrinking? « Job Market Monitor - November 14, 2012

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