Unemployment Graph When Labor Force Participation Rate Held Constant

One detail of the BLS reported unemployment rate is that it is highly influenced by variations in the civilian labor force participation rate .

When the civilian labor force participation rate declines, so does the unemployment rate (even when the employment rate does not improve, the unemployment rate can appear to improve when the labor force participation rate decreases).

What would Unemployment look like if the labor force participation rate were held constant?

For four months at the peak of the Dot Com boom, January-April 2000, the Civilian labor force participation rate was 67.3% and the Unemployment Rate for those four months averaged 4.0%. Over two-thirds of our civilian noninstitutional population age 16 and above was participating in the labor force, and of those, only 4% of them were unemployed. In April 2000, a record 64.7% of our civilian noninstitutional population age 16 and above was employed.

Of course, then the Dot Com Bust came, followed the next year by the 9/11/2001 attacks. Combined, these were a one-two punch to our economy and employment took a big hit, not recovering until after the passage of the 2003 Bush Tax Cuts. Employment improved for over three years, until 3 minimum wage hikes, the Fannie/Freddie sub-prime mortgage crisis, TARP, and the pork-filled so-called “stimulus” all drove employment lower.

But those first four months of 2000 showed that there was a point when 67.3% of our civilian noninstitutional population age 16 and above wanted to participate in the labor force.

One detail of BLS data is that the reported unemployment rate is highly influenced by variations in the civilian labor force participation rate, while the reported employment rate is not.

The Unemployment Rate is calculated as ((workforce – employed) / workforce), where workforce is (civilian noninstitutional population age 16 and above) * (civilian labor force participation rate).

The Employment Rate is calculated as (employed / population), where population is the civilian noninstitutional population age 16 and above.

Again, the reported Unemployment rate is highly influenced by variations in the civilian labor force participation rate, while the reported Employment rate is not.

That is why and how, from October 2009 to November 2013, the reported Unemployment rate could drop by three full points (from 10% to 7%), while the reported Employment rate only rose one-tenth of a point (from 58.5% to 58.6%).

The Unemployment rate improved not due to people moving from unemployed to employed, but rather due to people moving from unemployed to “not in labor force”. From October 2009 to November 2013, the civilian labor force participation rate dropped two full points, from 65% to 63%, as millions of people gave up hope of finding a job.  That is not an “improvement” for our economy nor for our nation.

What would the unemployment rate look like if the civilian labor force participation rate had stayed steady at the 67.3% level that we enjoyed at the peak of the Dot Com boom?

So I ran all the numbers from January 1995 to present and computed the effect on the other reported unemployment number if the Civilian Labor Force Participation Rate had been a constant 67.3%. The results are eye-opening:

Unemployment With Fixed 67.3% Labor Force Participation Rate

{Click on graph or here to enlarge}

By holding the Civilian Labor Force Participation Rate constant at 67.3%, (essentially removing the Labor Force Participation Rate as a variable), the graph of Unemployment for January 1995 to present (shown above) now looks like the inverse of Employment during that same time period (shown below):

Employment-Population Ratio and Averages, January 1995 - November 2013

{Click on graph or here to enlarge}

Since most people think of employment and unemployment as opposites, it makes sense that when we compare apples to apples (by removing the influence of the labor force participation rate from the unemployment graph) that the unemployment graph would be the inverse of the employment graph.

============================

How did I create the graph of adjusted unemployment numbers?

I started by looking at BLS Table A-1. Employment status of the civilian noninstitutional population 16 years and over, 1978 to date, and confirmed that I could replicate the calculations done to compute those employment and unemployment rates.

Next, I found the links which provided the monthly historical data for each of the 8 data columns in Table A-1. Those links are:

1) Civilian noninstitutional population age 16 and above
2) Number Civilian Labor Force (Civilian Labor Force Level)
3) Percent of population in Civilian Labor Force (Civilian Labor Force Participation Rate)
4) Number Employed in Civilian Labor Force (Number Employed)
5) Percent of population Employed in Civilian Labor Force (Employment-Population Ratio)
6) Number Unemployed in Civilian Labor Force (Unemployment Level)
7) Percent of population Unemployed in Civilian Labor Force (Unemployment Rate)
8) Number Not in Labor Force

I created a spreadsheet and transposed data from the links above into the 8 data columns like Table A-1.

Finally, I computed the effect on the other columns if the Civilian Labor Force Participation Rate had been a constant 67.3% from January 1995 to present, and then I graphed this adjusted Unemployment number.

============

UPDATE:

Here is the graph of unemployment data from above, correlated with Majority Party (the party holding a majority, 2+ out of 3, of the House, Senate, and Presidency):

Unemployment With Fixed 67.3% Labor Force Participation Rate, by Majority Party

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UPDATE: Using newly-released BLS data through Dec 2013:

Unemployment With Fixed 67.3% Labor Force Participation Rate, by Majority Party, Jan 1995 - Dec 2013

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8 Responses to Unemployment Graph When Labor Force Participation Rate Held Constant

  1. On Twitter:

  2. Miri says:

    Excellent, as usual! Thanks for putting it into a simple “sight bite” that is easily understood by the Twitter generation.

    “That is why and how, from October 2009 to November 2013, the reported Unemployment rate could drop by three full points (from 10% to 7%), while the reported Employment rate only rose one-tenth of a point (from 58.5% to 58.6%).”

    That’s an amazing statistic.

  3. Thanks, Miri.

    In summary, if one keeps the Labor Force Participation Rate constant (rather than moving millions into “Not in Labor Force” where they don’t get counted in the Unemployment Rate), then the Unemployment Rate…

    Unemployment With Fixed 67.3% Labor Force Participation Rate, by Majority Party

    …ends up mirroring (being the inverse of) the Employment Rate…

    Employment-Population Ratio and Averages, January 1995 - November 2013

    Neither unemployment nor employment have improved over the last 4 years. In fact, neither measure has improved at all during the entire duration of the Obama administration. Both rates are still worse than the corresponding average from January 2009 to present.

  4. UPDATE: Using newly-released BLS data through Dec 2013:

    Unemployment With Fixed 67.3% Labor Force Participation Rate, by Majority Party, Jan 1995 - Dec 2013

  5. FYI, I’ve been posting quite a few Twitter Tweets regarding #BLSdata.
    To see them, click on this link: Twitter results for @ITTRP #BLSdata

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