Most of us think about the unemployment rate going down due to more people getting jobs. But there's also another way the official unemployment rate can go down. It happens when the denominator -- the bottom number of the fraction -- goes down.
And that is what has been occurring again recently. The Labor Pool has shrunk, making the unemployment rate look better than it actually is.
I dunno. Here's a look at the labor force participation rate for the civilian population, aged 16 and over:
It is certainly true that the participation rate has been heading down over the course of the year. In the longer view, however, the change looks pretty unexceptional. If you break things down by age, you see some pretty standard looking variation in the participation of prime-age workers...
... and yet another pronounced slide in the participation rate of 16-19 year olds:
That drop in the participation rate of teenagers accounts for about one-third of the decline in the overall participation rate. What's more, the participation rates of individuals over 55 have been essentially flat, a marked change from the last decade over which those rates steadily rose. Combined with the declining rate of the youngest group of workers, the tailing off of participation among AARP-aged workers is enough to explain the entire decline in the aggregate participation rate since the beginning of this year.
You might define "recently" as "since 2000 or so", and there you would be justified in claiming a broad-based decline in the number of people choosing to participate in U.S. labor markets. But I use the word "choosing" intentionally, as I'm convinced that the post-2000 changes in labor force participation rates (or employment-to-population ratios, if you like) reflect trends that are largely independent of the business cycle.
You may not join me in that belief, but broader unemployment measures -- those that account for discouraged workers, marginally attached workers (those not listed in the labor force, but who nonetheless say they want work), and part-time workers who say they would like full-time work -- don't suggest that the standard unemployment statistics are leading us astray:
Is unemployment worse than we think? I kind of doubt it.
UPDATE: pgl fills in the some of the numbers to the pictures above -- and notes that Dean Baker is not as sanguine as I.