The unemployment rate has fallen from 9.0% to 6.1% in the past three years, but the official jobless rate under-estimates labor market slack because jobless workers who have given up looking for work are not counted as unemployed.  Five years into an economic recovery today’s unemployment rate is historically high, after accounting for the changing demographics of the U.S. labor force.  While the unemployment rate is just 0.1% higher than it was 35 years ago, when President Jimmy Carter had an approval rating of just 33%, this difference understates the weakness of today’s labor market in comparison to 6% unemployment rates in the 1970’s and 1980’s.

Changes in the composition of the labor force make today’s 6.1% unemployment rate more troubling because today’s labor force is older, more experienced, and more educated than it was in 1979.  These demographic shifts contribute to a lower measured aggregate unemployment rate.  If the age distribution of the labor force today was the same as it was in 1979, the unemployment rate would be 7.4%, not 6.1%.  This is because the unemployment rate today is at least one percentage point higher for each age group than it was in August 1979.

In addition, today’s adult population is more educated than the population in 1979.  In 1979, about 31% of the adult population (age 25 and above) did not have a high school degree, compared to 11% of adults today.  Only 17% of adults in 1979 had a college degree compared to 32% of adults today.  Because more educated workers have lower unemployment rates, the jobless rate for adults age 25 and above would be substantially higher than in 1979 if we compare workers in the same education groups.  The 5.1% unemployment rate for adults age 25 and above would be at least 5.9% if the labor force contained as many high school dropouts and as few college graduates as it did in 1979, when the unemployment rates for adults age 25 and above was 4.1%.

Adjusting for the aging and increased education of the U.S. labor force, today’s unemployment rate of 6.1% is comparable to an unemployment rate of 7.4% or higher in the late 1970’s.  While the decline in the unemployment rate over the past few years has been welcome news, an unemployment rate even in excess of 5% is high by historical standards after five years of economic recovery.