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Charts of the Day: Labor Force and Unemployment Rate Adjusted for Population Growth Since 1948 Show Falling Unemployment Rate is “Statistical Mirage”

Courtesy of Mish

In Unemployment Rate Dips to 8.6% as 487,000 Drop Out of Labor Force I presented some quick facts on the drop in the unemployment rate.

  • In the last year, the civilian population rose by 1,726,000. Yet the labor force fell by 67,000. Those not in the labor force rose by 1,793,000. 
  • In November, those "Not in Labor Force" rose by a whopping 487,000. If you are not in the labor force, you are not counted as unemployed.
  • Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Labor Force and Unemployment Rate Adjusted for Population Growth

Reader Tim Wallace responded with a very nice set of graphs and commentary. Wallace writes:

In the entire history of the labor force data, only in 1951, 1961, 1964, and 2009 did the labor force "shrink". It also "shrank" in 2011 off 2010. Also note that from 1964 to 2007, only in 1991 at 631,000, 1995 at 723,000 and 2002 at 801,000 did the labor force fail to add more than 1,000,000 people. 

However, in 2008 the labor force only expanded by 776,000. This was followed by a loss of 826,000 in 2009, a trivial gain of 155,000 in 2010 and a loss of 67,000 in 2011. 

If you look at the average labor force growth from 1948 to 2007 of 1,579,000 the labor force should have expanded by 6,316,000 2008-2011. Instead the labor force expanded by a mere 38,000!

Thus, 6,278,000 people are unaccounted for in the unemployment numbers based on historical averages.

The final graph takes the adjusted data and calculates the unemployment number off the adjusted workforce and those that actually have jobs. The unemployment numbers using this historical trend method show the following numbers for November in these years:

Unemployment Rate Adjusted for Population Growth

2007 4.7%
2008 7.3%
2009 11.7%
2010 12.4%
2011 12.2%

I am sure it is just coincidence, but it is interesting to note that the flat lining of the labor force began in earnest with the Obama administration.

Tim

Thanks Tim!

(click on any chart for sharper image)
Labor Force Seasonally Adjusted 1948 to Present

Labor Force Seasonally Adjusted 1948 to Present 
Years 2008-2011 Adjusted to Historic Growth

Unemployment Rate Adjusted for Normal Labor Force Growth 1948 to Present

Due to boom demographics, a slowing rate of increase in the labor force was to be expected. Instead the bottom has fallen out for 3 years.

Conclusion

Those who think the economy is improving based on the falling unemployment rate are looking at a statistical mirage based on an extremely atypical and prolonged drop in the labor force. 

Mike "Mish" Shedlock


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