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Analyst Schalin: End the Unemployment Rate Shell Game

By Michael Kling   |   Friday, 05 Oct 2012 10:51 AM

It's time to end the shell game of the unemployment rate, argues Jay Schalin, director of state policy analysis at the John W. Pope Center for Higher Education Policy, a nonprofit in Raleigh, N.C.

The closely followed unemployment rate is a poor tool for measuring the economy, Schalin argues in an opinion piece for Fox News.

Although the unemployment rate has dropped over 2 percentage points, from 10 percent to just under 8 percent since 2009, median family income has dropped about 8 percent and more recent college graduates cannot find work.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

"Clearly, the unemployment rate is not telling the full story," Schalin writes.

The U-3 unemployment rate is the percentage of the work force that's employed or actively seeking work. So, when people stop looking for work, they statistically disappear, making the unemployment rate appear unrealistically rosy, he says. If they were counted, the unemployment rate would be over 11 percent.

The government should instead use the labor force participation rate, a much better tool for assessing the economy, he argues. That rate, which has dropped from 66.1 percent in 2008 to 63.6 percent in September, is the percentage of the working-age population that's now employed or seeking work.

By making it easier for people to drop out of the labor force, the government can decrease the unemployment rate and make the economy look better. Providing Social Security disability benefits, extending unemployment benefits and promoting college education are all government tools to decrease work force participation.

Although an educated work force is usually beneficial, a smaller work force hurts the economy, and government debt will increase as fewer workers pay taxes, he warns. "If we stay on the current path, the economy will collapse under the weight of its social and educational programs."

The number of Americans not in the labor force increased by 2.6 million to 88.7 million in the past year, reports The Huntington Post. But 2.2 million of those who dropped out of the work force don't want a job anyway. Many are over 65 years old and are retiring, and others are teenagers returning to school.

"But we shouldn't just assume that everybody dropping out of the labor force, or even most of the people dropping out, are doing so because they're simply discouraged," writes Mark Gongloff for The Post. "We just don't know that for sure."

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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