Recently, we have seen a rise in the unemployment rate to 7.9%. This coincides with an increase in the labor force participation rate to 63.8% according to BLS.gov. Perhaps due to the recent drop below 8% people have become encouraged that there are more opportunities to get a job. However, for once this shows a more accurate picture of the unemployment rate by including a few more participants in the labor force. Some say that the true unemployment rate is upwards of 11 or even 12 percent. These numbers include those discouraged workers who have quit looking for a job and simply dropped out of the labor force. I find it interesting that the unemployment rate is given much more weight in the political spectrum when it seems to me the labor force participation rate is equally relevant when describing the state of the economy.
The labor force participation rate has seen a steady decline over the past 3 years. The unemployment rate has seen some modest improvement over the past year and a half but that may be due to that decline in the labor force participation rate. These two rates have a relationship that helps paint a somewhat clearer picture of the economy. While the labor force participation rate has declined we have also seen prices increase--the price of gas the most notable indicator of rising prices. Wages have decreased and inflation has increased. It's a pretty bleak picture, I know. However, I feel this picture only reenforces the core principles of economics and finance. These principles suggest that there are consequences when spending is increased. An increase in the money supply leads to higher prices. Bailouts of bankrupt companies may keep the status quo and save jobs in the short term but overall purchasing power has now decreased because we have an industry that was bailed out. No one can say exactly what would have happened but one thing is for sure: jobs were prevented from being created elsewhere.
