THE ECONOMY WON'T BE AN ISSUE:

The "labor force participation rate" -- the share of adults who are either working or actively looking for work -- is near a three-decade low, which might seem to suggest that there are lots of people waiting to return to the job market. But a big part of that decline is due to the retirement of the baby boom generation. And even controlling for the aging population, labor participation was falling long before the recession, for reasons that are only partly understood.

The White House, in its report, estimates that the combination of demographics ("aging trends" in the chart below) and other long-term trends ("residual") together account for the vast majority of the decline in labor force participation since 2009. Only the small sliver in the middle of the chart is due to the state of the economy. In the Obama administration's estimation, there are about half a million Americans who should be in the labor force but aren't. If they were counted as unemployed, the jobless rate would be about 5.2 percent, only a few ticks higher than the official rate.

The White House, of course, has an incentive to make the economy look as good as possible. So as a check on their number, I built my own simple model (an updated version of the one I used in this story a few years ago) to estimate how many people are still missing from the official unemployment rate. (I'll put the details in a footnote,1 but essentially I just assumed that prerecession trends held steady.) My model estimates there are as many as 1.5 million people who should be included in the unemployment rate. That's triple the White House's estimate, but it still implies the "real" unemployment rate is down to 5.8 percent.

The difference between 4.9 percent and 5.8 percent is small but significant. Many economists consider 5 percent to be a rough long-term floor for the unemployment rate (other economists think the floor is lower); unemployment can't drop much below that threshold without triggering inflation. But if there are really hundreds of thousands or even millions of willing workers just waiting to get back into the labor market, that means there is room for job growth to continue without driving up inflation. The participation rate has edged up in recent months, suggesting that the stronger economy is drawing workers off the sidelines. 

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