The Unofficial Paul Krugman Web Page: "Economists who argue that there's something wrong with the unemployment numbers are buzzing about a new study by Katharine Bradbury, an economist at the Federal Reserve Bank of Boston, which suggests that millions of Americans who should be in the labor force aren't. 'The addition of these hypothetical participants,' she writes, 'would raise the unemployment rate by one to three-plus percentage points.'
Some background: the unemployment rate is only one of several numbers economists use to assess the jobs picture. When the economy is generating an abundance of jobs, economists expect to see strong growth in the payrolls reported by employers and in the number of people who say they have jobs, together with a rise in the length of the average workweek. They also expect to see wage gains well in excess of inflation, as employers compete to attract workers.
In fact, we see none of these things. As Berkeley's J. Bradford DeLong writes on his influential economics blog, 'We have four of five indicators telling us that the state of the job market is not that good and only one - the unemployment rate - reading green.'
In particular, even the most favorable measures show that employment growth has lagged well behind population growth over the past four years. Yet the measured unemployment rate isn't much higher than it was in early 2001. How is that possible?
The answer, according to the survey used to estimate the unemployment rate, is a decline in labor force participation. Nonworking Americans aren't considered unemployed unless they are actively looking for work, and hence counted as part of the labor force. And a large number of people have, for some reason, dropped out of the official labor force.
Those with a downbeat view of the jobs picture argue that the low reported unemployment rate is a statistical illusion, tha"