Unemployment's Real Rate

Did you go “Yippee!” when the news broke last week that unemployment fell to 8.6 percent? Well if you did here is some sobering news that might interest you.

Since 2007, the percent of the population that either has a job or is actively looking for one has fallen from 62.7 percent to 58.5 percent. That’s millions of workers leaving the workforce, and it’s not because they’ve become sick or old or informed. It’s because they can’t find a job, and so they’ve stopped trying. That’s where Luce’s calculation comes from. If 62.7 percent of the country was still counted as in the workforce, unemployment would be 11 percent. In that sense, the real unemployment rate – the apples-to-apples unemployment rate – is probably 11 percent. And the real unemployment rate – the so-called “U6” – is near 20 percent (Source: Washington Post)

When calculating the unemployment rate, only people out of work and actually seeking employment are considered when developing the unemployment rate. Those who have given up the search for work are no longer considered.