In Barack Obama’s 2014 State of the Union speech, the president proudly asserted that the nation currently has the “lowest unemployment rate in five years.” Obama insisted these improvements in the nation’s employment figures were the result of the president’s economic policies and social programs, but the evidence suggests that other factors are responsible for the changes.
There is a popular misconception in America that the unemployment rate is a measurement of the proportion of people not working relative to the total population. A more accurate understanding of the unemployment rate, however, is that it measures the percentage of the population that is not working relative to the total number of people employed or seeking employment, a group known as the labor force. The difference may seem subtle on the surface, but the effects of this change dramatically alter the way unemployment is calculated. Not only are all American citizens, such as retired seniors, not included in the unemployment rate, all Americans not actively looking for work are also not included.
With this understanding of the unemployment rate in mind, it becomes easier to see that President Obama’s economic reforms have not improved the economy or caused true unemployment rate to drop. The real reason for the changes is that millions of Americans have fell out of the labor force since President Obama took office in 2009 and have never returned. In December of 2013 alone, the unemployment rate fell from 7 percent to 6.7 percent because 347,000 Americans left the labor force, many of whom gave up looking for work. Since the recession has started in 2008, it is estimated that the total American labor force has declined from 12.6 million to 9.18 million, a figure that almost entirely explains the drop in unemployment since President Obama has taken office.
Another important theme of President Obama’s State of the Union address was his plea to Congress to extend expired unemployment insurance for 1.6 million people. Because many Americans who receive unemployment benefits are counted as part of the labor force, the loss of unemployment insurance has actually contributed to the fall in the unemployment rate as more Americans lose benefits and give up looking for work. Ironically, if unemployment benefits were extended, as President Obama is requesting, the unemployment rate would likely rise.
Although the unemployment rate remains the most widely used measure for the success or failure of the American economy, a true representation of the number of Americans looking for work who are unable to find a quality job must take the growth and retraction of the labor force into account. Failure to do this by major media outlets and politicians has given the impression that the economy is improving at a faster rate than it actually is.