Federal Reserve officials have long been concerned that the official unemployment rate might be a "misleading indicator" because of the number of people quitting the workforce altogether, Chairwoman Janet Yellen said Monday.
Yellen addressed the possible shortcomings of the unemployment rate as a gauge of a healthy economy in a public interview Monday at the University of Michigan, wading into a topic that lately also has been a fixation of President Trump.
Unemployed workers who give up on finding a job and quit the job hunt are not included in the Census Bureau's definition of the unemployed. As a result, large numbers of quitters artificially lower the unemployment rate. On Monday, Yellen allowed that such a dynamic played a role in the decline in the unemployment rate in past years, although she said it was hard to know how just how significant that role was.
"Some of the decline in labor force participation might reflect a weak economy and be a kind of hidden unemployment," Yellen told the audience of academics and students.
Labor force participation has plummeted since 2008. Part of that decline reflects the ongoing retirement of the Baby Boom generation and other long-running demographic factors, while part of it is attributable to workers getting discouraged by the lack of available positions and ending the job search.
Since late 2013, however, the labor force participation rate has remained level at near 63 percent, despite expectations that the ongoing demographic changes would drive it lower.
That pause, according to Yellen, is good news, as it means that more people are coming off the sidelines and back into the job search. "We have drawn people into the labor force and the labor market who had been discouraged," she said.
Trump has long raised doubts about the official unemployment rate, although the White House has expressed confidence in the Census Bureau's numbers since Trump took office. The Census Bureau conducts the survey for the Labor Department.
In a meeting with CEOs last week, Trump noted that the calculation of the unemployment rate doesn't include people who halted the job search.
"I call them the forgotten man, the forgotten woman," Trump said. "But a lot of those people — a good percentage of them would like to have jobs and they don't."
While Yellen on Monday discussed uncertainty within the Fed about the exact influence of labor force quitters on the unemployment rate, in the past she has said that the unemployment rate is probably the single best indicator of overal economic health.