Is the Unemployment Rate an Accurate Measure of the Economy?

Ben Casselman in Five Thirty Eight asks: “Is the unemployment rate, now at 4.9 percent, an accurate reflection of the health of the economy?”

The latest annual Economic Report of the President, released Monday, President Obama’s top economic advisers “said that the people who gave up looking for work during the recession have by now largely returned to the labor force.”

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“The White House, of course, has an incentive to make the economy look as good as possible. So as a check on their number, I built my own simple model (an updated version of the one I used in this story a few years ago) to estimate how many people are still missing from the official unemployment rate … My model estimates there are as many as 1.5 million people who should be included in the unemployment rate. That’s triple the White House’s estimate, but it still implies the ‘real’ unemployment rate is down to 5.8 percent.”

“If there are really hundreds of thousands or even millions of willing workers just waiting to get back into the labor market, that means there is room for job growth to continue without driving up inflation. The participation rate has edged up in recent months, suggesting that the stronger economy is drawing workers off the sidelines. Next week’s jobs report will give the latest sign of whether that trend is continuing.”

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