Donald Trump is right: America’s real unemployment rate is 40%
Donald Trump’s presidential campaign is not predicated on the candidate’s mastery of or allegiance to facts.
His views on things like immigration or international trade are just not supported by any relevant statistics. So when The Donald called into CBS’ Face the Nation on Sunday and claimed that Americans are living in a “false economy,” where the unemployment rate is actually 40% rather than the 5.1% as reported by the Labor Department, you’d be forgiven for believing this was just another Trumpian whopper.
But actually, this view can be supported by actual statistics. If you use the broadest definition of unemployment, the ratio of people over the age of 16 with jobs to the overall 16-and-over population, the Labor Department says that 40.6% of the population is unemployed.
Unfortunately, the veracity of Trump’s analysis ends there. As you can see from the above chart, 40% of the 16-and-over population not having a job is nothing new in America. Trump’s campaign slogan, Make America Great Again, presumably refers to his hope of returning America to it’s post-war glory, when the U.S. economy accounted for a much larger share of global GDP than it does today. But that was a time when a lower percentage of Americans of working age had a job.
When you study the statistics carefully, you find that the employment-population ratio has much more to do with social factors than the strength of the economy. As it became socially acceptable (and for middle class families economically necesssary) for women to enter the workforce in large numbers, the ratio rose. As the country aged and a greater share of workers entered retirement years, the ratio fell.
It’s also true that the Great Recession has affected the labor market in ways that are still being felt. Long-term unemployment skyrocketed and has yet to fall back to pre-crisis levels, and that fact shows up in the employment-population ratio. But to claim that the unemployment rate is a statistic that, as Trump said, “was made up by the politicians for the politicians . . . so they could look good,” has no basis in fact.
The Labor Department compiles and publishes many different measures of the health of the labor market, with the “official” rate, also known as U3, just being one of many. As I have written before, these numbers cannot be understood in a vacuum:
Sure, Wall Street and the White House might have an incentive to convince people that the economy is better than it actually is. (The media, on the other hand, is encouraged to play up bad news, which gets more attention.) But it’s an insult to the public’s intelligence to suggest that it could be tricked into thinking the economy is good just because the Labor Department says so.
The economy and the labor market are certainly not back to full strength, which is why the Federal Reserve, for instance, hasn’t yet begun raising rates even with the “official” unemployment rate lower today than the post-war average. But that doesn’t mean this particular statistic is a lie, or without its uses. It’s simply one of many statistics we must use to understand the health of the economy.