What is the "real" unemployment rate?
 

There is little disagreement that one reason that the unemployment rate has fallen recently is because the labor force has stopped growing and is contracting. But if one concludes that the declining unemployment rate is solely due to the labor market tightening, that conclusion is subject to interpretation. Many believe that because of the poor economy, many have simply given up looking for work so the  labor force has shrank (and the unemployment rate declines). The official unemployment rate, which is widely reported, only tells part of the story.

And how does the contraction of the labor force impact GDP, or gross domestic product, which is the broadest measurement of the health of the economy? (We'll leave that discussion for another time, but by one estimate, if the "missing" workers were to quickly move back into the ranks of the employed, that it would add about two percent to GDP.)

Actually, the federal government does report what it labels as "Alternative measures of labor underutilization" (government-speak for "unemployment rate") with six variations; the official unemployment rate is just one of them. When discouraged workers are calculated in, the unemployment rate rises by a little more than one-half of a percentage point; add in all persons who are marginally attached to the labor force (those who are neither working or looking for work, but say they want a job and are available) and another percentage point is added to the unemployment rate. And persons working part time for economic reasons would account for another five or more percentage points.

I founded Creative Staffing in 1985. About five years later, I first met Bruce when I was the president of the Florida Staffing Association (then known as the Florida Association of Temporary Services) when he first joined the staff of the American Staffing Association (was National Association of Temporary Services, NATS). In the more than 20 years that I have known him and seen his career progress, I have also known many staffing service consultants and experts. Plainly stated, he is the BEST employment analyst there is. He understands our challenges and industry like no other. -- Ann Machado, President | CEO | Founder, Creative Staffing, View more Testimonials

Therefore, by the broadest measurement of labor underutilization, or U-6, the quasi-unemployment rate in January 2012 was 15.1 percent, compared to the official rate of 8.3 percent. A year earlier, U-6 was 16.1 percent and the official unemployment rate was 9.1 percent, so the situation has improved. In comparison, in June 2010, when the recession officially ended, the unemployment rate was 9.4 percent and U-6 was 16.5 percent.

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But there are a number of reasons why people are no longer active members of the labor force and this  inflates the alternative measurements of unemployment. Because of the widely reported skills gap, many who can't find a job because of inadequate skills have gone back to school to be re-skilled, re-educated, and re-trained.

Some government programs, albeit well intentioned, have become de facto early retirement programs for those unable to find work, or "acceptable" work.

To what extent have the unemployment compensation extensions artificially inflated the number of unemployed workers? How many workers, unwilling to invest in new skills, claim to be looking for work to receive the benefits rather than simply retire?

The labor force participation rate, which we report every month in this report, is now 63.7 percent-- five years ago it was 66.4 percent. And a similar number, which we also report, is the employment-to-population ratio. In January 2012, it was 58.5 percent and five years ago it was 63.3 percent.

With so many no longer counted as part of the labor force, but would like to be members of the labor force, is also why that when the economy starts to markedly improve, the official unemployment rate may actually rise because people who have been on the sidelines (and therefore not counted as part of the labor force) may jump back in the labor pool. But, they don't all get jobs right away, so if the labor force expands and the unemployment rate may rise as well.

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"Bruce is an invaluable resource to me in working through the strategic planning process with my clients in the staffing industry. Bruce consults with me on each engagement and customizes his deliverables accordingly, exceeding my expectations each time. He expediently gathers and compiles the data I need and delivers it in user-friendly reports which make the analysis portion of my job easy. Because with Bruce's assistance I can make strategy recommendations with confidence and accuracy, my clients benefit greatly in turn. He is the ultimate "consultant's consultant." -- Amy Bingham, Bingham Consulting Professionals

• The Construction sector was able to nail together 21,000 more jobs in January (was up 31,000 in December) courtesy of the Nonresidential specialty trade contractors, which added 9,700 more jobs.

• Manufacturers put together 50,000 new jobs last month (they were up by 32,000 in December) with Durable goods adding 44,000 jobs with strong growth in Transportation equipment, Fabricated metal products, and Machinery again in January; Nondurable goods added 6,000 jobs.