What's wrong with unemployment stats

Paul Craig Roberts - Consider something as simple as the unemployment rate.  The US is said to have full employment with a January 2018 unemployment rate of 4.1 percent, down from 9.8 percent in January 2010. 

However, the low rate of unemployment is contradicted by the long-term decline in the labor force participation rate.  After a long rise during the Reagan 1980s, the labor force participation rate peaked in January 1990 at 66.8 percent, more or less holding to that rate for another decade until 2001 when decline set in accelerating in September 2008.  

Today the labor force participation rate is the lowest since February 1978, reversing all of the gains of the Reagan years. 

Allegedly, the current unemployment rate of 4.1 percent is the result of the long recovery that allegedly began in June 2009.  However, normally, employment opportunities created by economic recovery cause an increase in the labor force participation rate as people join the work force to take advantage of employment opportunities. A fall in the participation rate is associated with recession or stagnation, not with economic recovery. 

How can this contradiction be reconciled?  The answer lies in the measurement of unemployment.  If you have not looked for a job in the last four weeks, you are not counted as being unemployed, because you are not counted as being part of the work force.  When there are no jobs to be found, job seekers become discouraged and cease looking for jobs.  In other words, the 4.1 percent unemployment rate does not count discouraged workers who cannot find jobs.

The US Bureau of Labor Statistics has a second measure of unemployment that includes workers who have been discouraged and out of the labor force for less than one year.  This rate of unemployment is 8.2 percent, double the 4.1 percent reported rate.   

The US government no longer tracks unemployment among discouraged workers who have been out of the work force for more than one year.  However, John Williams of shadowstats.com continues to estimate this rate and places it at 22 or 23 percent, a far cry from 4.1 percent.

In other words, the 4.1 percent unemployment rate does not count the unemployed who do show up in the declining labor force participation rate.