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Why The Jobs Shortage Is Worse Than It Sounds

Saturday, April 9, 2011 - 12:37 PM
This touches on some of what MISH was saying, but puts it in a more clear perspective, showing how easy it could be to be confused by information... without context.


In plain English, that means fewer Americans are working, or want to work. And that distorts the meaning of the unemployment rate and other important indicators. Here, for example, are a few stats showing what the unemployment rate would be if participation rates were at levels of 2000 (67 percent), or 2007 (66 percent):

Actual unemployment rate: 8.8 percent. Actual participation rate: 64.2 percent.

Unemployment rate if the participation rate were 66 percent: 11.3 percent.

Unemployment rate if the participation rate were 67 percent: 12.7 percent.*

Nobody would feel good about the economy right now if the unemployment rate were above 11 or even 12 percent.
That could be a problem. A slack labor market usually puts downward pressure on wages, which makes it harder for workers to keep up with inflation. That creates the powerful--and legitimate--sensation of falling behind instead of getting ahead. Fewer workers with money to spend also means there will be less economic activity overall, which contributes to slower growth. And the pace of growth helps determine whether prosperity feels abundant, or elusive.

But a stagnant labor force and a lower participation rate will also make the economy seem healthier, sooner.

MikeMike327 posts since
Feb 22, 2010
Rep Points: 876