Today, the Department of Labor (DOL) announced that the U.S. unemployment rate in June was 4.9 percent. On the surface, it seems like good news. After all, the unemployment rate peaked at 10 percent during the Great Recession.
However, the unemployment rate doesn’t tell the whole story. It is calculated as a percentage, dividing the number of unemployed individuals by all individuals currently in the labor force—that is, people with a job or actively looking for one.
For example, in a town of 10,000 people where 1,000 people are unemployed and trying to find jobs, the unemployment rate would be 10 percent. But this doesn’t take into account people who are so frustrated with the job market that they drop out of the labor force altogether. These people aren’t counted as unemployed but they certainly don’t have jobs—making the official unemployment rate smaller than it really should be.
More than 94 million Americans don’t work but also aren’t considered unemployed by the DOL—up from about 80.5 million in 2009. More than 20 million of these individuals are working-age but aren’t pursuing a job opportunity at all. Yet the unemployment rate doesn’t even factor them in.
Think back to that imaginary town of 10,000 people. If 500 of its 1,000 unemployed residents gave up looking for work altogether, the town’s official unemployment rate would drop to five percent—even though those former job-seekers were in no way better off.
A better gauge of the economy is the labor force participation rate (LFPR), which also takes into account people in and out of the labor force. And it paints a different picture: The LFPR currently hovers around 63 percent, the lowest figure since the late 1970s. In other words, the unemployment rate is lying to you.
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