Accounting for Dropouts in Unemployment Rate

The Wall Street Journal breakdown recent trends in the unemployment rate, labor force participation rate, and the recent drop in the unemployment rate to 7.8%:

  • ...starting in mid-2010, the model and the real world began to diverge. As employment begins picking up, the model, based on historical patterns, expects the participation rate to start stabilizing. Instead, workforce participation has continued to drop, hitting a three-decade low in August.
  • Based on the model, the labor force is about 2.5-million people smaller than it “should” be. If we add those people back the labor force as unemployed workers, the unemployment rate today would be 9.3%, well above the official rate of 7.8%,