What Donald Trump gets wrong (and right) about the unemployment rate

Donald Trump lies about the unemployment rate. But his professed skepticism that the American labor market is as healthy as the official 4.7 percent unemployment rate might lead you to believe feels correct to a lot of people because it does, in fact, capture an important truth about the current state of the American economy.

Broadly speaking, most economists would say that’s good. It’s now similar to where it was before the onset of the Great Depression, with some even saying we’re close to “full employment” in the American workforce.

During the campaign, Trump generally referred to the unemployment rate as “rigged” or even “totally fake.” Since taking office, his administration has grown more friendly to citing the official numbers, even though the rate has remained largely unchanged for months.

Still, Trump continues to have his doubts, and speaking Tuesday morning at a White House town hall for CEOs, he managed to completely mis-explain how the unemployment rate works.

“When you look for a job, you can’t find it, and you give up,” he said, “you are now considered statistically employed.”

That would be a pretty silly way to calculate the unemployment rate, and, indeed, that is not how the unemployment rate is calculated. (More on this in a minute.)

At the same time, Trump is speaking to a bigger truth when he says the unemployment rate may offer a distorted view of the labor market, and his opinion that the current numbers somewhat overstate the health of the economy has some real basis.

How the unemployment rate is calculated

The official unemployment rate is calculated by the Bureau of Labor Statistics, a team of economists housed in the Labor Department.

It could be relatively easy for them to calculate the unemployment rate in a straightforward way: Count up the number of people who don’t have a job and then divide that number by the total population. Call that the non-employment rate if you like. But the BLS doesn’t do that because the ranks of the non-employed include a lot of people whom most wouldn’t consider unemployed. Just look at Trump’s own family:

• There’s Barron Trump, who doesn’t have a job because he’s a young kid.
• There’s Melania Trump, who doesn’t have a job because she’s a stay-at-home mom.
• There’s Ivanka Trump, who is affluent enough to be able to afford to work full time at the White House on an unpaid basis.

There are also large groups of retired people and disabled people in the United States who are not working but who are also not unemployed, and a certain number of full-time students who fit the bill as well.

Consequently, when the BLS surveys people about the state of the labor market, it only counts you as unemployed if you say you are actively looking for a job. The survey doesn’t make a judgment about whether you should be looking for a job — just whether you say you are. So here, Trump is wrong. If you are jobless and give up, you’re not counted as unemployed — but it is true that they start leaving you out of the equation altogether.

There are alternate measures of unemployment

The good news for statistics junkies is that the BLS is aware that people may be interested in signs of labor market weakness beyond the official unemployment rate. Consequently, they also chart two additional classes of non-employment:

• Workers who work part time for economic reasons say they are working part time because they cannot find a full-time job, not because they prefer to be working part time.
• Workers who are marginally attached to the labor force say they are interested, in principle, in finding a job but for one reason or another have not been actively seeking one. A subset of the marginally attached workers is discouraged workers who, per Trump, say they aren’t looking for work because they don’t believe any work is available.

The BLS has long published a data series that includes marginally attached and “part-time for economic reasons” workers with the unemployed, and it is known as the U-6 rate. The Gallup Organization has somewhat confusingly taken to regularly publishing U-6 statistics and calling it the “real unemployment rate,” which has the unfortunate consequence of making the main unemployment rate — known as U-3 — sound as if it is somehow fake.

But while reasonable people can disagree about the best plain-English characterization of a marginally attached worker’s situation, it’s pretty plainly not the case that a part-time worker is “really” unemployed. He has a part-time job! The fact that he would like full-time work and can’t find it is legitimately a form of labor market weakness, but it’s also legitimately not unemployment.

The chart above pictures the U-6 rate minus the U-3 rate, and it shows that during the depths of the Great Recession, the divergence between these two measures exploded. The divergence then remained at an elevated level through to the beginning of 2012, allowing several years for the gap to become an entrenched talking point among critics of the Obama administration.

For the past four or five years, however, the gap has been falling very steadily, showing that improving economic conditions are real.

Other forms of non-employment are also relevant

Even U-6 takes, in a sense, a narrow view of how background labor market conditions impact people’s decisions.

Any given full-time parent or retired 62-year-old may be truly and sincerely happy with his choices in life and very genuinely not looking for work. And yet it’s probably also true that in the middle of an economic boom, with employers raising wages and putting out the help-wanted signs, you would have fewer people in both categories. We know, too, that background economic conditions have an impact on the rate of disability — not because anyone is faking anything, but because when it’s hard to find work, it’s especially hard to find work that can accommodate various kinds of difficulties and special situations.

One interesting labor market fact is that it’s much more common for a person who’s not in the labor force to get a job than it is for an unemployed person to get a job. That’s largely a reflection of the fact that unemployed people are rare compared with people who are not in the labor force — the job-finding rate among the formally unemployed is considerably higher — but it also goes to show that there is in reality no hard-and-fast line separating those who are in the labor force from those who are outside of it.

An increasingly popular broad summary of where we are in the labor market comes from the employment-to-population ration for people between the ages of 25 and 54, known as the “prime age” population.

This index shows a long, steady upward ascent driven by women’s increasing participation in the workforce, punctuated by downturns during recessions. The slope never reobtained its year 2000 peak during the mid-aughts recovery, rising slowly but surely but then falling again in the face of the Great Recession. It’s been rising steadily again for years, but it remains below its George W. Bush levels, to say nothing of its Clinton-era high point.

One could see this as a “cyclical” issue arguing primarily for the Federal Reserve to take a relaxed attitude toward raising interest rates, or as a “structural” issue that requires bigger changes — new investments in child care, job training, or worker relocation programs — to remedy.

Take Trump seriously, not literally

Trump continually misstates facts about the unemployment rate and how it is assembled. At times he does so in a conspiratorial tone that rightly outrages people who are aware of the hard work and integrity of the people who produce government economic statistics.

That said, one reason Trump’s skepticism resonates with people is that if you abstract away from the details, it is basically true that the 4.7 percent unemployment rate in March 2017 reflects an economy that is substantially weaker than the 4.7 percent unemployment rate of December 1997. Older people, especially, who were actually in the workforce 20 years ago probably recognize this on an instinctive level, even if they can no more explain the precise nature of the deterioration than Trump can.

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