The “Real” Unemployment Rate

Oct 9 2012 @ 5:13pm

ParticipationRateProjection

Romney claims that it's 11 percent. Catherine Rampell counters:

Gary Burtless, an economist at the Brookings Institution, estimates that half of the decline in the labor force participation rate “can be traced to an aging population.” The calculation above also ignores the fact that a higher share of young people are going to college, and are staying out of the work force temporarily while they improve their skills.

Because of these factors, it’s hard to know what the “right” labor force participation rate should be right now. It should probably be higher than the 63.6 percent recorded for September — since there are indeed a lot of discouraged workers out there who want to work but have given up looking — but we don’t know precisely how much higher.

Bill McBride agrees:

Here is a graph of the actual overall participation rate and a few projections through 2040. The participation rate might increase a little over the next year or two, but in the longer term, the overall participation rate will probably continue to decline until 2040.