The “Real” Unemployment Rate Is 9.7 Per Cent

The official jobs figures for August have focussed attention on an issue that labor-market experts have been puzzling over for years: the decline in the proportion of Americans who are working or actively looking for work. Last month, the labor force participation rate dropped to 63.2 per cent, its lowest level in thirty-five years. That’s pretty remarkable, especially for an economy that is supposedly in its fifth year of recovery. (According to the National Bureau of Economic Research, the Great Recession, ended in the spring of 2009.)

In the usual scheme of things, many people drop out of the labor force during recessions because jobs are scarce and they lose hope of finding employment. But once the economy picks up, they start sending out résumés, and the participation rate gradually picks up. (For the Labor Department to count someone as being in the labor force, he or she has to have been working or actively looking for work during the month prior to the date of the government’s monthly employment survey.) This recovery is different. In August, 2008, just before Lehman Brothers blew up, the participation rate was 66.1 per cent. Five years later, it’s still almost three percentage points lower than it was then.

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