Unemployment: What it is and isn't

What with all the concern about economic recovery from the Great Recession of December 2007 to February 2008 (when about 8.7 million jobs were lost and the GDP contracted by 5.1%), there has been considerable and very understandable concern about the degree to which things have improved since then.

Unfortunately, in the process there have been many distortions and misinformation concerning unemployment figures, which we propose to expose and explain.

How many people are unemployed?  95 million?

Have you seen the various numbers that have been bandied about on the internet?  The highest we've seen (as of December 2016) is about 95 million.  While this total is based on actual, verifiable data from the Bureau of Labor Statistics (BLS) it is misleading (which is why we've included it on our Lying with Statistics page).

So here's the deal, while population data shows that around 95 million are not employed, that number includes lots of people who likely aren’t looking for work. It includes every American of retirement age -- 65 and older. It includes every high-school student at least 16 years of age. It includes every college and many graduate or professional-school students currently enrolled and in classes. It includes every person who has a disability that makes it impossible for them to work. It includes parents who are choosing to stay home to take care of their kids. It includes every adult who’s gone back to school full-time. It even includes trust-fund kids who are living off investments. 

Of  the number of Americans age 16 and up who are deemed "not in the labor force" (this is the data being used), 9.7 million of them are between 16 and 19 years of age. Another 5.7 million are between 20 and 24. And 37.8 million are age 65 and over. (In fact, 17.5 million are over 75 years old.)

Get the picture?  When it comes to the actual number of people (not the percentage, or unemployment rate) who could work and maybe want to work, it's a lot less (more than half less) than the 95 million being cited (again, early December 2016)

So what's the best way to view this?  While the following is from 2014, here's a graph that shows

This graph provides a visual breakdown to help see how the total number not in the labor force does not accurately represent those who could work but are unemployed.  About 41 million Americans don’t work because they’re retired. These retirees are overwhelmingly actually of retirement age. It makes no sense to say they are "unemployed." On top of that, an additional 15 million say they’re not in the labor force because they’re in school. Some students, of course, work while they’re in school.

From what we've seen on the internet, most of those who cite the 95 million are trying to discredit the unemployment rate that is released by the BLS, usually in order to claim some sort of false reporting and/or point out the failure of the president in office at the time.  As you now know, this is a form of misleading, if not lying with statistics.

To see our Lying with Statistics page

Unemployment rate:

Presented as a percentage of the labor pool, this is the number most often provided by the BLS.  As of the end of 2015, this is how it has changed over the past 7 years (since the Great Recession)

Calculating the unemployment rate:  

Unemployment rate is the percentage of labor force that is currently unemployed but was available for job in last four weeks and was actively seeking employment in that period. It is the ratio of the number of unemployed people to the sum of the number of employed and unemployed people.

It is arguably the single most important economic statistic. The closer the rate is to the natural rate of unemployment, the healthier the economy is. An unemployment rate significantly higher than the natural rate of unemployment means that the economy is in recession.

According to the definition of the Bureau of Labor Statistics (BLS), employed persons are persons who are:

Aged 16 or older,
Work for an employer or are self-employed,
Not volunteers, and
Not engaged in self-service such as homemaking, etc.

Unemployed persons are persons who:

Are aged 16 year or older,
Are not engaged in any employment (self or otherwise),
Were available for job in last four weeks, and
Have made specific efforts to find a job at any time during last four weeks.

Formula: Unemployment Rate =         Unemployed         

                                                       Employed+ Unemployed

How valid is the unemployment rate provided by the BLS?

Given the definition used (see above), it is totally valid.  But the BLS has developed alternate measures, as shown below. 

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