Unemployment Rate VS Labor Force Participation. Explaining the lie

We are used to hearing about the unemployment rate going down or up and when we hear it is going down that's good new,right?WRONG

There is a huge difference and the unemployment rate is usually a false indicator of the truth.

Here is how it works.

Let's say we live in a town named "Happyville".

Happyville has 10000 residents and 1000 of them are currently unemployed.So that comes up to 10% unemployment rate.Let's fast forward a couple of moths when 400 of them have given up and decided to live with friends or family.Now the official  Unemployment Rate  has dropped to 6% even though those 400 people did not get a job but just got tired of looking for one.

Another indicator that changes when those 400 quit is the Labor Force Participation which also goes down,and that one should also be taken under consideration .

Let's take a look at a graph from the Bureau of labor statistics

Conclusion:

Of course the Unemployment rate is important to go down,but it is much closer to the truth when the Labor Force Participation is high.