The official unemployment rate is 5.5%. The real unemployment rate is 13.3%.
This means 22.81 million Americans are unemployed —not 8.3 million.
The official number isn’t close. It’s not even in the right ballpark.
This article shows why the unemployment rate is wrong, and recalculates it from scratch.
Defining “Unemployment”: How Is The Unemployment Rate Calculated?
The unemployment rate is calculated by a government agency called the Bureau of Labor Statistics (BLS).
Here’s a handy flow chart:
If you don’t like infographics, here’s a more detailed version:
The BLS begins by taking America’s total population and subtracting everyone who’s younger than sixteen, who’s in the military, or who’s “institutionalized” (in jail, asylums, or old folks homes).
This gives them the non-institutional population—everyone who can potentially work.
This population is then divided into two groups:
- the civilian labor force (people who have or want jobs) and
- those not in the labor force (people without jobs, who don’t want jobs).
The labor force is then sub-divided into employed and unemployed people.
The unemployment rate is simply the percentage of people in the labor force who don’t have jobs, but want one.
Officially there are 8.3 million unemployed people.
Why The Unemployment Rate Is Fake
To be unemployed, you must be actively looking for work.
In other words, if you stop sending out resumes or contacting employment agencies, then you drop out of the labor force, and are no longer technically unemployed—even if you stopped looking for work because there was no work.
This leads to some ridiculous distortions.
For example, say you live in a small town whose livelihood is tied to the local factory. Now pretend the factory shuts down and half the town loses their jobs. If these people don’t bother looking for work (because there is no work), they are not officially unemployed, they drop out of the labor force.
No unemployment—even though a whole town is on welfare.
These are America’s invisible people. They’re our ghosts.
What Is The Actual Unemployment Rate?
How many people were falsely dropped from the labor force? A lot.
To its credit, the BLS tries to account for this with its U6 Unemployment Rate, which includes the 8.3 million officially unemployed people, plus 6 million involuntary part-time workers, and 1.7 million “marginally attached” workers (people who send out the occasional resume).
This brings the real unemployment rate up to 9.7%, or 16 million people—almost double the official rate.
But that’s not all.
Why People Drop Out of the Labor Force: “Other Reasons”
The BLS tracks why people drop out of the labor force in a comprehensive national survey.
In 2015, 1.7 million people said they dropped out for “other reasons”.
When looking at what these reasons were, it turned out that 1.5 million of them cited that there was no work as the reason they stopped looking.
Where did I find this tidbit of information? Buried in footnote 3 of their report—they weren’t technically lying, but they sure weren’t honest.
Apparently “other reasons” is code for “there’s no work”.
This brings the running total up to 17.5 million unemployed people.
“Going Back to School”
On top of that, millions of Americans claimed they dropped out of the labor force because they went “back to school”. Great, if it’s true.
But it’s not.
When we check labor force dropout rates against actual school or college enrollment numbers, it’s staggering.
For example: in 2014, 31% more teenagers claimed they couldn’t work because of school than in 2004. However, school enrollment only increased by 1%.
The same is true for young adults (age 20-24): in 2014, 28% more of them claimed they couldn’t work because they were going to college than in 2004, but post-secondary enrollment only increased by 8.4%.
Unless young people stopped skipping class or drinking, and started studying like never before, it’s safe to assume most of them stopped working because there were no jobs.
This accounts for another 3.35 million people, which brings the running total up to 20.85 million unemployed people.
Another major category that distorts the picture are disability claims.
In 2014, fully 31.5% more people said they couldn’t work because of disabilities, but the number of disabled people only increased by 13.6%, according to Social Security.
In effect, the jobs market is so bad, that 1.96 million people with, sometimes minor, disabilities have been squeezed out of the labor force. Many are now chronically unemployed, while others live off government handouts.
That’s bad for them, and that’s bad for the taxpayer.
This brings our final total up to 22.81 million unemployed Americans.
This means the true, honest-to-goodness, real unemployment rate is 13.3%.
No kidding. No jokes. That’s it.
Keep in mind, this doesn’t include people who retired early because they couldn’t find work, nor people who are underemployed (think of all those people with college degrees working at Starbucks).
It also doesn’t include estimates regarding illegal immigrants, many of whom are unemployed, yet still draw upon the welfare system—there are potentially millions more that we simply don’t have adequate data for.
We are wasting an unbelievable amount of talent.
The US Labor Force Participation Rate Is Declining
If we look at something called the labor force participation rate, which is the percentage of people not in the labor force relative to those who are, we find that it’s been dropping steadily.
As of 2015, it was 62.7%—down 5% from its peak in 2000.
This is the lowest it’s been since 1977, the era of stay-at-home moms and little pink houses.
This is a giant step backwards in America’s economic history, and wellbeing. It underlines the fact that there’s simply not enough work to go around.
The Costs of High, Chronic Unemployment
In the end, millions of Americans, especially our bright young people (millennials) are being denied their chance to work, to learn, and to contribute to the economy.
It’s slowing our economic growth, leading to increased substance abuse problems, higher crime rates: everything.
No jobs. No hope.
Not only that, but more unemployed people means more social programs, which means higher taxes.
If we want to shrink government, we have to get people back to work.
This should be our highest priority—for the good of our society and our economy.
Bureau of Labor Statistics. “Civilian labor force participation rate by age, gender, race, and ethnicity.” Accessed June 5, 2016. http://www.bls.gov/emp/ep_table_303.htm
—“Employment Projection.” Accessed June 17, 2016. http://www.bls.gov/emp/ep_chart_001.htm
Federal Reserve Bank of St. Louis. “Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons (u6RATE).” Accessed May 23, 2016. https://fred.stlouisfed.org/series/U6RATE
Hipple, Steven F. “People Who Are Not in the Labor Force: Why Aren’t they Working?” Bureau of Labor Statistics: Beyond the Numbers (4), 2015.
Social Security Administration. “Selected Data from Social Security’s Disability Program.” Accessed June 20, 2016. https://www.ssa.gov/oact/STATS/dibStat.html
United States Department of Health and Human Services. “Census Bureau Population Estimates as of July 1, 2004.” Accessed May 23, 2016. http://www.aoa.acl.gov/Aging_Statistics/Census_Population/Population/2004/Stterr2004_files/sheet004.aspx
—“Population Estimates, National Totals.” Accessed June 6, 2016. http://www.census.gov/popest/data/national/totals/2015/index.html