“Not Counted by Obama” Discouraged Workers are Responsible for Reducing the Unemployment Rate, Not Job Creation.
Friday’s farcical unemployment report has a lot of people scratching their heads. It’s a farce not because of how the rate is calculated, but because the media and the Obama administration are presenting the report as some sort of indication that the economy and job market are improving significantly.
Many people don’t understand how the unemployment rate can go down just because the Labor Force has been reduced. Well here is how it works and it shows why most if not all reductions in the unemployment rate to date, are due to people giving up looking for work, thus reducing the labor force and not due to job creation. Which of course, is what it’s all about.
How the Unempoyment Rate is Calculated
First lets start with the formula used to determine the unemployment rate. You can get this info from many sources, including the BLS but I chose a source that explains it simply. From ehow.com
“The formula for calculating the unemployment rate (expressed as a percent) is as follows:
Unemployment Rate = (Unemployed Workers / Total Labor Force) * 100″
Here’s an example from the same site…
For example: A small country has a population of 15,000 people. Of the total population, 12,000 people are in the labor force and 11,500 people are employed. What is the unemployment rate?
First, find the number of unemployed by subtracting the number of employed {11,500} from the labor force {12,000}.
That gives us 500 unemployed workers.
Now we can input the figures into the UE rate formula.
500 ue workers divided by 12,000 workers in the labor force gives us .042.
Multiplied by 100 gives us a UE rate of 4.2%
Here is how reducing the labor force reduces the UE rate without creating one job
This is How Reductions in the Labor Force as Opposed to Job Creation Can Reduce the Unemployment Rate
To keep things simple, let’s use their numbers but let’s reduce the labor force by 200.
Population = 15,000
Labor Force = 11,800 (12,000 – 200 = 11,800)
Employed people remain at 11,500 (no jobs added or subtracted)
Labor force minus employed people = 300 (11,800 – 11,500)
300 (unemployed people)divided by 11,800 (labor force) = .0254 x 100 = 2.54% Unemployment rate.
So as you can see, the act of reducing the labor force alone will reduce the unemployment rate. In the example above, reducing the labor force by 200 decreased the unemployment rate by 1.66% to 2.54%.
This illustrates how labor force reductions can be the primary reason for the unemployment rate reductions thus far. It becomes the primary reason when the jobs created thus far are incapable of moving the unemployment rate lower to the extent it has. Which has been the case thus far in Obama’s depression.
Friday’s .5% drop in the unemployment rate was primarily due to the 315,000 reduction in the labor force not job creation, the latter being what the Obama administration would like you to believe. So in essence, this failed administration has reduced the unemployment rate not by creating jobs but by manipulating the size of the labor force. And he’s able to reduce the labor force figures because hundreds of thousands of people have given up looking for a job. Get it?
