Thursday, November 19, 2009

The "Real" Unemployment Rate

I know that when unemployment goes down or a recession occurs there is a political incentive of the minority part to point out to the "real" unemployment rate wherein they include things like "underemployment" and the fact people have become discouraged and left the labor force. I don't much give credit to these figures, not because they aren't real, but any time there's a recession things like underemployment and discouraged worker occur anyway, regardless of who's in power.

However, for those that were interested, here is the labor force participation rate, which shows about 2% of the labor force has "quit" and stopped looking for jobs. If you want to add that 2% to the current 10.2% you would have a "real" unemployment rate of around 12%.

But don't worry, unemployment will continue to go up, so for those looking for more ammo against the Obama administration, don't worry, it's coming.


Hal (GT) said...

Had to laugh at how you ended your post. Yeah. It will continue to go in my opinion too. And I don't think it's solely President Obama's fault either. Congress plays big role too. More than anyone seems willing to give them credit for, I think.

Nick Rowe said...

Exactly right. People belly-ache about the unemployment rate understating the problem from the moment they hear about it in Principles of Economics.

What they often overlook is that the unemployment rate OVERSTATES the problem because of black market (drugs) and grey market (off-the-books) employment. Also, areas of persistently high unemployment have adapted to it (such as rural Alaska, El Centro, or Yuma).

The PURPOSE of our unemployment rate is to measure cyclical unemployment (as opposed to frictional or structural). That's why we calculate U-3 the way we do. Cyclical unemployment is the "bad" unemployment which, ostensibly, can be "corrected" with government policy. So the way we measure unemployment stems directly from a government hammer in search of a nail. Don't be too eager to showcase U-6 or Obama and the Demon Rats will pull out bigger hammers.

Here is the BLS data on U-1 through U-6. They all increased in October and September and were all non-decreasing in August.

The extension of unemployment benefits will, most likely, keep the unemployment rate elevated for some time. Of course, Obama won't attribute pervasive unemployment to his own policies.

Unemployment insurance is redistributive. Those who made more money get a smaller percentage of their former incomes in benefits. So high-wage/ high-ability people have a strong incentive to get off unemployment fast. I was getting only 20% of my previous paycheck the last time I was on unemployment.

Low-wage former workers, though, have little incentive to find jobs because their unemployment check is a larger proportion of their former salary and they can supplement it with odd jobs. They can afford to be PICKY about the jobs they take. They certainly won't be picking lettuce or changing linens in hotels.

Many years ago when I was a low-wage person, I stayed on unemployment for 5 months and even vacationed in Germany during that time. I was in no hurry to find a job. But I was getting bored watching C-SPAN all day, every day, so I went and got a job.

Most estimates are that the unemployment rate won't peak until between mid-2010 and early 2011. With foreclosures and delinquencies a consequence of rising unemployment, it's hard to fathom a recovery.

People who say we're in a recovery (for whatever motive) just "want" there to be a recovery. They aren't looking at objective facts.

A debt-supported increase in production would be fine if we knew a recession had a fixed duration. But with considerable uncertainty about the timing and strength of the recovery, we're digging a debt hole which only kicks the can down the road and can cripple us for decades. Indeed, new entitlement programs (like government health insurance) may be the last nail in our coffin.

The good news is that we have plenty of guns and ammo to keep the problem from getting too bad.