Over the last few years, we have seen the American left push the notion that that President Obama has saved the American economy and that if he was not black he would be universally loved. They constantly tout that the unemployment rate has returned to full employment, as shown in the graph below, and how we have had 73 months of job growth.
While these claims are factually true, they are extremely misleading. These claims are only sustainable if you look at one or two labor market statistics. Looking at the labor market through a variety of data points shows a market that is not fully recovered. We have only come to accept less than acceptable economic conditions because we judge the health of our economy based on misleading indicators.
So yes, the unemployment rate is dropping but that is because the labor force is getting smaller. Imagine you have 100 workers and 10 are laid off. The unemployment rate would be 10%. Now imagine that in two years 3 have gotten new jobs but 7 are still employed. Those 7 workers have been unemployed so long that they have dropped out the labor force. Because the unemployment rate is based only on what the size of the labor market simply dropping out of is because you have been unemployed for too long lowers unemployment. In our example, the unemployment rate would be 0% instead of the accurate 7%.
The reality of the situation is that the above example is exactly what has happened in our economy. By looking at the labor force participation rate we can see that the size of the labor market has shrunk by about 4-points since it peaked in 2000 and it is down 3-points since it peaked before the recession.
If we plot the labor participation rate against the unemployment rate we see a strong relationship between the two factors. In fact, the data shows that 75% of the change in the unemployment rate is because of the labor participation rate. Of course, part of the decline in unemployment is because the labor market is improving, some baby boomers are retiring and a whole host of other reasons but large portions of this decline are because of a shrinking labor force.
The left will often respond to this general criticism of the weak labor participation rate by saying it is falling because baby boomers are retiring. While this is partially true, as I said above, it is inadequate to explain the entire decline. The fact that the labor participation rate for those between 25 and 54 is lower than what it was when it peaked in the late 1990s and 2000s and before the Great Recession. Meanwhile, the labor participation rate for those over 55 has remained steady.
If we take a closer look at other metrics we can see that they have not recovered since the late 1990s and 2000s and before the Great Recession.
The percentage of the population on nonfarm payrolls as a percentage of the entire population is increasing but has not recovered to pre-recession or pre-2000 levels. The number of Americans self-employed has only shrunk since before the recession and before 2000 so that could not explain the difference.
Likewise, if we limit our population to noninstitutional civilians, “defined as persons 16 years of age and older … who are not inmates of institutions (e.g., penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces”, we see that the labor market still has not recovered.
Lastly, we have the employment to population ratio for civilians which is recovering but still has a long way to go until it reaches pre-recession and pre-2000 levels.
While we have seen an economic recovery has been tepid at best. The left can choose to cherry pick the major statistics but lying to ourselves only sets up a false reality. In the age where President Obama and the American left have made economic stagnation great it should be no surprise why tens of millions of Americans have chosen to go with the guy promising to “Make America Great Again”.