Lower Unemployment Rate Is An Illusion

In my post about the unemployment rate last Saturday morning, I said that the fact that the rate had dropped another 0.1% in August was not necessarily a good thing. That's because the number of employed persons in this country had also dropped, showing that the lower unemployment rate was not due to an improving economy with more jobs. Instead, it was due to a huge number of the unemployed who have given up and are no longer being counted as officially unemployed.

Now there is proof that what I said is true. New statistics from the Labor Department shows that the Labor Participation Rate (percentage of people over 16 who are working or actively seeking work) fell in August to 63.2%. It hasn't been that low since 1978 (a time when the rate was going up). The rate continued to rise until 2000, and then began to slightly decline as baby boomers started to retire.

But the huge drop in the participation rate cannot be attributed just to baby boomers retiring. The Economic Policy Institute estimates that between two-thirds and three-fourths of the drop in the rate is due to a lack of jobs. This lack of jobs has caused millions to give up after trying for a long time to find a job, and because they are not currently seeking work, they are no longer counted by the government as unemployed -- and by not counting these people, in spite of the fact they would love to have a job, the government statistics showing a lower unemployment rate is just an illusion.

This affects the economy as a whole because as fewer people hold jobs, less money enters the national economy, and with less money circulating through the economy there is less demand for goods and services (which translates into less demand for new jobs to be created). This needs to be turned around, and right now the only entity that can do that is government.

The Republicans tell us that austerity is the answer -- for the government to spend less money. That is exactly the wrong thing to do. By cutting government spending, we are taking even more money out of the economy, and depressing both demand and job creation. We need more government spending, to both create jobs and spur the economy. Giving the rich more money won't do this, since they already are spending all they want to spend. Money must be put in the hands of poor and working people, because they will spend they money and boost the economy by doing so.

Unfortunately, too many politicians and members of the general public have bought into the austerity argument -- and that means we are in for more years of a poor and struggling economy, where the rich do well but everyone else suffers. It is time for the government to institute a more fair and sane economic policy -- but that can only be done once the Republicans are voted out of power.