Editor's note: This piece was co-authored by Michael Talent.
Trying to figure out what the “official” unemployment rate means can be very frustrating. Much of what we hear is complex and counter intuitive. The numbers seem inconsistent with what people are experiencing and many people are simply losing interest. We hear about growth in the non-institutional population, a decline in the labor participation rate, people who are unemployed and want a job not being counted as unemployed just because they haven’t looked for a job in 30 days, and people who are working part time because they are unable to find full time employment being counted as fully employed. Even the Bureau of Labor Statistics breaks down the jobs data in six different ways and calculates six different unemployment rates.
Clearly, the employment situation is better than when unemployment peaked in October 2009 and there has been some positive economic news, particularly in the February jobs numbers. Yet large numbers of people are still unemployed and jobs are still hard to find. When a company announces open positions, the line of job seekers is long and snakelike as hundreds, if not thousands, of unemployed Americans wait for a chance to apply. There is a sense that while things could be worse, something is amiss. Is the unemployment picture really improving? Are the government’s economic policies working or masking serious underlying problems? We need a simple metric that tells us whether the economy’s is generating enough jobs. So, we decided to propose one.
In an effort to cut through the clutter, we went back to the basics. While the economy has been “recovering,” our employable population has also been growing. On average, about 119,000 people join our labor force each month and they need jobs. Everyone acknowledges that for there to be a genuine recovery, the economy must create sufficient jobs both for people coming into the labor force and for those who are already unemployed. Our goal was to come up with a simple method to determine whether our economy is creating jobs sufficient to meet this demand.