So, the unemployment rate fell to 4.9% for January. Obama supporters are in full gloat mode. Who can blame them? We haven’t seen an unemployment rate this low since February 2008.

There’s just one problem…

What often goes unreported is the labor participation rate. It’s been declining (actually, it’s been slightly increasing the last few months but is still well below what it was when Bush was in office). As of yesterday, the labor participation rate, which according the BLS is, “the percentage of the population that is either employed or unemployed (that is, either working or actively seeking work).” What does that mean exactly?

Well, let’s say we have a town of 1,000 people. Let’s say that 350 people in the town aren’t working because they are either retired or are stay-at-home parents. That means the town’s labor force is 650 people. The math looks like this:

1,000 population – 350 people who aren’t in the labor force = 650 people in the labor force

Now let’s say of the 650 people in the labor force, 600 have jobs. That means 50 of them are unemployed. Our unemployment rate would be 7.7%:

50 unemployed ÷ 650 labor force = 7.7% unemployment rate

Now let’s say six months pass and the only change is that 20 of the previously unemployed people either decided to officially retire or simply decided they no longer needed a job. The labor force would drop to 630 people. If the number of employed people stayed the same at 600, the number of unemployed would drop to 30. The new unemployment rate would be 4.8%:

30 unemployed ÷ 630 labor force = 4.8% unemployment rate

Nothing really changed except how the people were counted. Now keep that in mind as we look at the following table I put together using numbers from the BLS. I dug up the employment numbers for January 2009 (Bush’s last month in office) and plugged them into a spreadsheet along with yesterday’s employment numbers. Then I adjusted the numbers to reflect the difference in the labor participation rate. What I found was interesting.

Basically, what we can take from the above graphic is this:

The only difference between President Obama’s numbers and President Bush’s numbers is the change in the labor participation rate.

### 14 responses to An Apples-to-Apples Comparison of Obama and Bush

1. Agreed that the labor participation rate needs to be accounted for in all these numbers, but making the assumption that all of the non-participating people in the Obama era would be unemployed if they chose to participate (clearly not true in the case of people who have retired) is wrong. The same flaw is also on the other side: assuming that reducing the Bush era’s numbers to an Obama era’s participation rate would only remove unemployed workers from the pool doesn’t make sense. If fewer people are participating in the economy, you can’t assume the # of jobs remains stable.

What is unarguable is that the labor participation rate has decreased from 65.4 to 62.7%. But not all decreases in participation are necessarily bad. Machines are more efficient than humans at certain tasks, and the population that just turned 65 is the boomer generation (a baby born in 1946 turns 70 this year, and would have turned 65 during the Obama presidency). Since there are a lot more boomers than people before and after the boomers, some of this decline is a natural outcome of demographics.

• I’m not saying whether the declining labor participation rate is good or bad. All I’m saying is that it is the reason Obama’s unemployment numbers look as good as they do.

2. How is this comparing Bush to Obama, if you do not include the numbers when Bush took office in 2001?

• What do you mean? The numbers who Bush left office with unemployment at 8.5%. That pretty much sums up his disappointing presidency, doesn’t it? My point was to show the impact of the falling labor participation rate, which as you can see is the only reason we have unemployment back under 5%.

• Hi JLP: to compare the presidencies, you need Bush-start to Bush-end, and also Obama-start to Obama-end. Granted Bush-end and Obama-start are the same — without Bush-start, you aren’t comparing Bush-v-Obama — you are just showing stats for Obama. Where is the actual comparison to Bush (how did the job numbers look for Bush over his entire presidency?)

• BG,

That wasn’t the point of this post.

• No problem — the title of the post is what led me astray.

• Good point. I wasn’t proud of the title, but my blog software kept telling me it was too long.

3. I don’t see politics in your blog summary. I have other websites for stuff like this. Please stick to personal finance.

• So you don’t think politics is important, Steve?

4. It’s interesting because I think just about everybody in the world sees through these numbers. I mean, I’ve been around for boom times and I think it’s clear that although the unemployment number is around the same, that this is not a boom time.

That being said, I also get annoyed when people claim that the economy sucks. No, it doesn’t suck. 2008-2010 sucked. We were popping bubbles, we were losing jobs left and right, wages were falling, and foreclosures went to levels never before seen in history.

That’s not where we are today. The number of jobs being created may not be growing as fast as many like, but it’s still growing month over month. And, I actually think that the slow growth will make it harder to unwind, meaning that our next recession will likely be very soft compared to the crash and burn we went through years ago.

I think neither Bush or Obama were anything better than mediocre. Unfortunately, I don’t think they really could have been. Since we went all in with the global economy 20 years ago, we can’t control our own destiny like we once could. Back in the day, a global recession impacted us but we could set policy that would help pull our country out first, and in many ways lead other parts of the world out. Now, that’s not the case. Policy is a lot less effective because we’re directly tied into other areas of the world that we have no control over.

• Money Beagle,

It would be interesting to see where the job growth is coming from. I know health care is surging right now. There’s a ton of data to look at and none of it is nicely laid out.

I wouldn’t say the economy sucks, but I also don’t think it is great either.

5. JLP,
Appreciate all the work you share on your blog. Been reading for years.

This confused me initially, too, because in the second part, I saw the labor participation rates crossed (though it was by accident at first).

Population increased by 18M people. But labor force only increased by 5M people. Our population is aging, and baby boomers are retiring. They will not be participating and 5 years from now, same comparison could be made, as a greater percent reach retirement, and participation rate continues to fall, until an equilibrium with birth/death/ retired happens.

I don’t think the comparison is valid with the numbers posted.

• KThak,