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That Rosy Unemployment Rate

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With less than two months before the Presidential election, it’s getting harder and harder to separate fact from spin about the state of our economy. Nowhere is this task more difficult than in the debate over our nation’s unemployment rate.

One thing that most economists can agree on is that, nearly three years into the “recovery,” our labor market has dramatically under-performed. It took nearly two years after the end of the recession for job growth to return – something that hasn’t happened since the Great Depression – and once it did, the pace of growth has been anemic= The 1.7 million jobs created in the last year is weaker than any comparable period in a recovery since the 1950s and weaker than even the worst year of job growth in the Clinton administration. Meanwhile workers wages have been falling in real terms, not only over the past year, but since the recovery began in December 2001.

Despite this well-acknowledged weakness – and the oft-cited fact that President Bush is about to join the Herbert Hoover Club for losing jobs in his term – many conservative commentators have taken to championing the nation’s 5.4 percent unemployment rate as a sign of our labor market’s strength. The 5.4 percent rate is down from a high of 6.3 percent a year ago and stands near the 5.1 percent rate that President Bill Clinton faced when running for reelection in 1996. Perhaps it is this historically moderate unemployment rate that is telling the real story of our labor market, not the 1.6 million lost private sector jobs and declining incomes of the middle class.

The devil of this argument is in the details of why the unemployment rate is where it is today. The unemployment rate can go down for two reasons; either people become employed or those without jobs get frustrated and stop looking for work altogether. The first is good news for our economy; the second a sign of weakness. What we have seen over the past three years is that as job growth has faltered, many workers have gotten fed up and left the labor market, keeping the unemployment rate artificially low.

In August alone 150,000 workers left the labor force. They no longer tell surveyors that they are seeking work. They have given up the job hunt to help out at home, take classes or simply wait until a job hunt is more likely to produce results. When Bush took office, the labor force participation rate – which measures the fraction of the civilian population over 16 that is either working or looking for work – was 67.2 percent. Today that percentage has dropped to 66.0 percent. If the same share of the population had remained in the work force it would be 2.7 million workers larger than it is today. That would push the unemployment rate up to 7.1 percent.

In addition, the unemployment rate does not count all the people who are forced into part-time work because of the weakness in the labor market. In our increasingly agile labor market, many people are choosing to work part-time to balance their competing needs. But the number of people who, when surveyed, said they are working part-time only because they could not find full-time jobs has increased by 35 percent since Bush took office, the largest increase for any President on record. If we were to count these 4.5 million involuntary part-time workers as ‘part-unemployed’ the overall unemployment rate would increase further.

Finally, comparing the static unemployment rate today to that in 1996 is a bit like arguing that two cars whizzing by each other on a highway are at the exact same point, even if they are headed in opposite directions. It fails to capture the fact that under President Clinton the unemployment rate had fallen by 30 percent to reach its 5.1 percent level in August of 1996, while it has increased 29 percent to reach its 5.4 percent level under Bush. It fails to account for the 2 million fewer unemployed people in August 1996 than in January 1993 and the 2 million more unemployed people today than in January 2001. This is not to mention the 10.4 million jobs that had been created under Clinton compared to the 1 million jobs lost under Bush.

The saying goes that if something is too good to be true, it probably is. And the notion that amidst the weakest labor market recovery in 70 years the unemployment rate could somehow explain away the pain of American workers is just that.

Brian Deese is a senior policy analyst for economic policy at the Center for American Progress.

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