Monday, January 11, 2010

Smaller Civilian Labor Force

There are lots of ways to calculate the unemployment rate. There are U-3 and U-6. The government likes U-3 because it is rarely in the double digits. I like U-6 because it measure the lost potential in the economy. But both of these measure have flaws. One of the flaws is that both measures use the civilian labor force in the calculation.

It leads to the question are the measures too low ?? It looks like the answer is yes because the civilian labor force is growing at a slower rate than the US total population.

If the civilian labor force had grown at the same rate an additional 5.4 million people would be in the labor force. The size of the labor force has dropped by 2.3% compared to the overall population.

The chart illustrates the point. The total population grew by 14.6% but the labor force grew by only 10.7% and employment grew by only 5.0%. So the real question is what are these extra 5.4 million people doing, if they are not working ??

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