Friday, January 6, 2012

BLS Massaging Labor Force Participation Rate (denominator in unemployment rate)

Students in my macro classes have heard me say for years that a fundamental weakness/issue/falsehood of the BLS unemployment rate is the definition of the "labor force"---the denominator in the unemployment percentage.   Those readers who completed sixth grade know that holding a numerator while decreasing the denominator will increase a percentage rate.  It is commonly observed that journalists lack certain math competency, but perhaps one or more in the Executive Branch do.

As Tyler Durden legitimately contemplates in his blog (linked below),  how can it be that the labor force be declining as the overall non-institutionalized civilian population is increasing?   Also, of particular curiosity, the U.S. will reach 0% unemployment when the labor force participation rate hits 58.5%.   Hmmm...

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