Why jobless rate is higher than it seems

The labor market is nowhere near as strong as it appears. If that sounds surprising, it’s because the Biden administration is playing a shell game with unemployment numbers.

With millions of Americans missing from the workforce, the unemployment rate is being artificially depressed. Accounting for this sleight of hand reveals an unemployment rate of over 6%, not the official 3.8%.

President Joe Biden inherited an economy that was growing at a $1.5 trillion annualized rate and was adding an average of 1.4 million jobs per month after the government-imposed shutdowns. At the same time, inflation was only 1.4%, which is even below the Federal Reserve’s 2% target. But Biden’s anti-growth, big-government agenda slammed the brakes on the economy and the labor market.

After just 18 months of the Biden administration, inflation soared to 40-year highs, and the economy contracted for two consecutive quarters. Average monthly job growth has slowed 70%, and America remains 4.6 million jobs below its pre-pandemic trend.

The Bureau of Labor Statistics’ survey of households contains even worse data, showing the number of Americans employed remains 5.5 million below its pre-pandemic trend. The survey also shows a depressed labor force participation rate and a shocking increase in the number of people not in the labor force, relative to February 2020.

Before the government-imposed lockdowns, the number of people not in the labor force was about 95 million and was falling. Since June 2020, however, the level has been stuck around 100 million. That means millions of Americans left the labor market still haven’t come back, which explains why the ratio of employment to the population also shows a gap of 4.5 million people relative to its trend.

These millions of missing workers are important to remember because their absence skews many of the statistics used to gauge the health of the labor market. Imagine a labor force of 100 people wherein 10 are unemployed, giving an unemployment rate of 10%. If one of those unemployed people leaves the labor force, the unemployment rate drops to 9.1% (9 divided by 99).

No jobs were created in that example, but the unemployment rate went down. That’s exactly what’s been happening in the real economy. Accounting for the millions of people currently excluded from the labor market reveals an unemployment rate between 6.3% and 6.8%, much higher than the official 3.8% rate.

The number of job openings has plummeted to below its pre-pandemic trend, indicating softening labor demand which will put downward pressure on wage growth. At the same time, businesses are cutting hours and reducing the number of full-time employees.

As inflation continues to eat into family budgets and more households need a second income, additional people are reentering the labor market, all while businesses are hiring less. That will drive the official unemployment rate much higher and expose this shell game for what it is.

E.J. Antoni is a public finance economist at The Heritage Foundation and a senior fellow at Committee to Unleash Prosperity./Tribune News Service

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