The Return of NILF

Over the years, we have mentioned on more than one occasion the not-as-dirty-as-it-sounds measure, NILF. No, it has nothing to do with moms -- rather, it stands for Not In Labor Force.

It is one of the reasons the official BLS unemployment rate is actually understating the actual unemployment rate.

A quick primer on how this works: The Unemployment rate is depicted as a percentage, and like all percentages, it is actually a fraction. You take the total number of people in the labor pool, the total number of workers:

    Employed Individuals

    _______                =   Percent Employed 

    Total Labor Pool

Subtract the percent employed from 100% and you get the unemployment rate.

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.  

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