The unemployment rate, among other statistics, is an important tool used by decision makers in the US economy. This statistic and others like it: the labor force participation rate, and the employment population ratio, can have immediate and lasting effects on an individual in the economy and are therefore very important and should be carefully studied.
According to the Bureau of Labor Statistics the unemployment rate has slowly climbed since January 2014. Using seasonally adjusted household data one sees a .1% increase from January to March of 2014. This means that .1% of workers lost their jobs and remained unemployed, while still looking for a job, for a prolonged time. With this extra .1% the official over age 16 unemployment rate is fairly stable at 6.7%. This means that 6.7% of the work force have be unemployed for a while, have failed to find a job, and are still looking. This number has far reaching impacts into many areas of the economy but is understated. The 6.7% figure is the U3 number, which fails to take discouraged workers or marginally attached workers into account. If the unemployment rate does not recognize those who have lost hope of finding a job or those who work very few hours then the statistic could be very low and thus misleading. Another measure, the U5 unemployment rate, takes these two factors into consideration. The seasonally adjusted U5 number from January to March of 2014 drops by .1% but holds steady at 8.0% in March. By comparing these two figures one can see that the official unemployment rate is understated by about 1.3%. A change of this size has the potential to alter the choices of decision makers and therefore broader unemployment figures should be equally considered.
Like the unemployment rate the labor force participation rate is an important indicator of economic performance. This is the percentage of the population that is in the labor force, employed or unemployed. However, this number is only derived from the percentage of the civilian population that is 16 years or older and in the labor force. In March of 2014 this number slightly increased to 63.2%. A BLS table shows that the labor force participation rate has fallen by ~3% since 2004. This means that just less than two thirds of the employable population is in the labor force and this number is slowly dropping. This change could be due to older workers retiring, however, it could also partly be due to workers becoming discouraged and dropping out of the labor force. This figure is immensely important because government programs such as Social Security or Medicare benefit those who are not in the labor force at the expense of those in the labor force. A declining labor force participation rate is alarming because it shows that the ability of the labor force to support those not in the labor force could be in jeopardy.
A final figure, the employment population ratio, measures the ratio between the employed and the employable population in an economy. This figure is important because it measures the percentage of the population that is able to work that is actually employed. The BLS report states that this figure is 58.9% for March of 2014. This means that approximately 60% of the employable population is working, or about 40% are not working. This figure has similar applications to the labor force participation rate in that it is important for understanding the ability to maintain government programs like Social Security, Medicare, Medicaid, or various welfare programs. Even if one assumes that the ~40% is entirely composed of retired individuals (which is not probable) this figure calls into question the sustainability of the aforementioned government programs.
The three statistics mentioned above: the unemployment rate, the labor force participation rate, and the employment population ratio, are all indicators of economic activity that has far reaching effects. The U3 unemployment rate is showing modest increases while conversely the U5 rate is decreasing by the same amount. One would expect that if economic policy is unchanged then the unemployment rate will also remain relatively unchanged and the difference between the U3 and U5 rates will stay around 1-2%. Conversely the labor force participation rate dropped by 3% in 10 years and one expects that this trend will continue if there is no change in policy. One also sees a similar trend in the employment population ratio. These trends promise future economic disaster if not reversed. If policies are left unchanged one expects that the labor force participation rate will drop by another 3% or more in 10 years, and the employment population ratio to also drop by a significant percentage.
Works Cited:
The Empolyment Situation-March 2014. (2014, April 4). Bureau of labor Statistics. Retrieved April 17, 2014, from http://www.bls.gov/news.release/pdf/empsit.pdf
Databases, Tables & Calculators by Subject. (n.d.). Bureau of Labor Statistics Data. Retrieved April 18, 2014, from http://data.bls.gov/timeseries/LNS11300000
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