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The Misleading Jobless Rate

We have NFP for February getting released Friday, and in light of that, I want to direct your attention to David Leonhardt's very interesting article in today's NYT. He covers a subject we have discussed around here ad nauseum: The Misleading Jobless Rate.

Over the years, TBP has looked at the Augmented unemployment rate, as well as the NILF issue (Not In Labor Force).

Here's the money quote:

Over the last few decades, there has been an enormous increase in the number of people who fall into the no man’s land of the labor market that Carroll Wright created 130 years ago. These people are not employed, but they also don’t fit the government’s definition of the unemployed — those who “do not have a job, have actively looked for work in the prior four weeks, and are currently available for work.”

Consider this: the average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s. Yet the percentage of prime-age men (those 25 to 54 years old) who are not working has been higher than in any decade since World War II. In January, almost 13 percent of prime-age men did not hold a job, up from 11 percent in 1998, 11 percent in 1988, 9 percent in 1978 and just 6 percent in 1968. (emphasis added)

How are these seemingly inopposite data sets co-existing? Leonhardt

There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.

If growth in this group were the reason for the confusing statistics, we wouldn’t need to worry. It would be perfectly fair to say that unemployment was historically low.

The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation.

Source:
Unemployed, and Skewing the Picture
David Leonhardt
NYT, March 5, 2008
http://www.nytimes.com/2008/03/05/business/05leonhardt.html

Wednesday, March 05, 2008 | 11:27 AM | Permalink | Comments (53) | TrackBack (2)
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Comments

This is my situation exactly. I have both BS and MA from very fine schools, have 6 years of corporate work experience and as many working for myself. I can't find a job!!! Most of the jobs that I find for which I am qualified pay what I was making nearly 10 years ago at my first position. So, I am a stay at home dad for now. I would love to work, but I am not going to work 70 hours a week for a salary that when divided out for an hourly calculation pays what Fast Food Joint pays! Then I have to find day care and pay for $ gas. It is very frustrating. When housing has doubled, gas is outrageous, food is a fortune and the salaries are exactly what they were 10 years ago? What the????

Posted by: Matt | Mar 5, 2008 11:39:59 AM

If the military ever scales back in Iraq (totally a pipe dream IMO) how is that going to affect the numbers???

Just come up with another methodology to exclude them too?

That is a rhetorical question BTW

Ciao
MS

Posted by: michael schumacher | Mar 5, 2008 11:40:45 AM

How is prison population counted in these stats?

1,000,000 in prison - an ever incrasing share of the pupulation - mostly men in working age - should be relevant in these numbers.

Posted by: b | Mar 5, 2008 11:41:58 AM

"Most of the jobs that I find for which I am qualified pay what I was making nearly 10 years ago at my first position."

This is not consistent with wage inflation and neither is the"second possible explanation" in the NYT story.

Posted by: TempusFugit | Mar 5, 2008 11:50:16 AM

Can't find the reference now but ISTR that on a per capita basis the US has the largest prison population in the world: If accurate that might fit into Leonhardt's "second possible explanation" I suppose but it should be included in any case as 'b' mentions.

From a 'bigger picture' perspective the trend Leonhardt refers to seems inevitable doesn't it? Under what circumstances would growth in employment increase when technological replacement (of human workers), productivity and population are increasing too?

Might include wage/labor arbitrage in that also although it is not clear to me that is still growing, at least at the rate it was a few years ago (I recently read an article describing the difficulty several Chinese companies were having locating and/or successfully hiring skilled workers).

Posted by: RW | Mar 5, 2008 11:54:19 AM

What about all the illegal workers in this country? Are they figured into the numbers?

Posted by: Richard | Mar 5, 2008 11:54:52 AM

I'm grateful to the government that they respect us enough to lie to us with bogus statistics and walla walla bing bang data. When they just come out with the truth and challenge you with a "So what?", then it's time to worry.

Posted by: AGG | Mar 5, 2008 12:16:45 PM

It would be interesting to look at the sub-cohorts within the 25-54 %employed group.

One hypothesis might be that there's been a long term trend to persuit of (and necessity for) graduate degrees to gain access to careers. This could be tested by looking at employment ratios specifically for those of typical grad school age.

Posted by: Estragon | Mar 5, 2008 12:25:49 PM

I find the whole - "would like to work and qualified but not looking" argument implausiable. It goes against Maslow and any other common sense theory. If they're not looking they must not need to work. I think far more people are working unofficially (like my brother who contracts himself out as a finishings worker/construction) than anyone gives enough credit for. People are working, they're just working in differnet ways. IMHO.

Posted by: Adam | Mar 5, 2008 12:31:29 PM

I haven't made a equity investment in over a year. I guess I'm not an investor.

Posted by: VennData | Mar 5, 2008 12:36:01 PM

ABK - buy the rumor, sell the news.

Somedays I think the only traders left are me and the computers...

Posted by: Vermont Trader.. | Mar 5, 2008 12:42:08 PM

Adam,
You are right. However, subsistence work doesn't mean job aecurity, savings for retirement or a stable economy. All this flux breeds dislocations which, while benefiting a few well positioned individuals, harms society as a whole. We don't want job security because people are lazy or lack initiative. Employment security is the mental health of a country. It might be boring, but it beats anarchy.

Posted by: AGG | Mar 5, 2008 12:42:10 PM

I agree Karl, as I've mentioned elsewhere, I think this will shake out with net worth (one way or another).

I took some time off with my dot-com winnings, but I didn't put them into house-flipping like some of my peers(!).

Posted by: odograph | Mar 5, 2008 12:45:00 PM

(I guess that last part is a caution .. you can start in "group one" and end in "group two" if you don't manage risk properly.)

Posted by: odograph | Mar 5, 2008 12:46:24 PM

I stopped working in the summer of 2001. Since then I have sold all my investments, paid off all my debts and now have a very liquid position.

I didn't want to help participate in an economy where con-artists and grifters have risen into leadership positions of everything-everywhere that's USA.

I'm just sitting here watching the wheels turn round and round.

Posted by: Steven | Mar 5, 2008 12:51:17 PM

It depends on you definition of unemployed and under employed.

European contries have a different social system and 'count' differently. Unemployment rates in France/Germany are reported to be much high even though their GDP growth is similar to ours.

I'll take a stab and say inflation is probably 6 to 8% and unemployment is closer to 6 to 7%. I know our Gov. would disagree but then they have 4 martini lunches.

I'm not trying to be negative or cynical. I just want to be on the reality page.

Posted by: Ross | Mar 5, 2008 1:03:58 PM

If the military ever scales back in Iraq (totally a pipe dream IMO) how is that going to affect the numbers???
Posted by: michael schumacher | Mar 5, 2008 11:40:45 AM

_______

You've got it backwards. The unemployed will fill the ranks of the military when we use the ultimate economic stimulus package - war - to get ourselves out of this mess.

Posted by: Marcus Aurelius | Mar 5, 2008 1:05:40 PM

If anyone's interested, this Dallas fed piece puts a bit more meat on the bones.

Charts 2 suggests early retirements aren't contributing to the declining participation rate, as participation rates in older workers is increasing. Chart 3 suggests much of the decline is in younger workers, and in particular among those enrolled in school.

Also interesting but not directly on point is the info in table 2, which suggests the correlation between GDP growth and participation rates is strongest with a 3 to 4 quarter lag. Assuming that holds, we shouldn't expect the effects of the recent slowdown on participation rates to peak until later in 2008.

Posted by: Estragon | Mar 5, 2008 1:25:40 PM

MS,

"If the military ever scales back in Iraq (totally a pipe dream IMO) how is that going to affect the numbers???"

Back in the '80s, the Reagan administration started counting those in the military as "employed", in a desperate attempt to put lipstick on the pig of their failed economic policies. Since the military categorizes those who leave as still "active" for a number of years after, it's unlikely to impact the official numbers for quite some time.

Of course, even more joblessness will prevail as the realty.
.

Posted by: VJ | Mar 5, 2008 1:42:01 PM

I would like to work and am qualified but not looking. I also don't need to work, but that is because my needs are few. I have no desire to move, commute hours, or work for what earned a decade ago. I work around the house. It isn't renumerative but it is freeing.

Posted by: Lord | Mar 5, 2008 1:59:07 PM

U-6 is almost 9%

Posted by: Stuart | Mar 5, 2008 2:16:59 PM

I've got the answer...gubmint buys up foreclosed McMansions for pennies on the dollar and hires millions of unemployed to remodel 'em into halfway houses, thus alleviating prison overcrowding. Only problem is you then need to staff 'em and in CA the average prison guard (qualifications: high school diploma and no felony convictions) makes about 70K a year, before OT - I kid you not.

Posted by: drey | Mar 5, 2008 2:20:09 PM

What Matt said is basically my story. IBM sent my job to India in 2001 and contrary to popular belief, if you are fired (even if one of 50,000), you are considered not employable any where else. I mean, IBM complains about no talent so if you were fired you must be useless.

I have 4 years of grad school and did not invest in that education to be offered a job for $30,000 a year. Much less than half of what I used to make and the benefits aren't there either.

"It would be interesting to look at the sub-cohorts within the 25-54 %employed group.

One hypothesis might be that there's been a long term trend to pursuit of (and necessity for) graduate degrees to gain access to careers. This could be tested by looking at employment ratios specifically for those of typical grad school age."

I have read of older people trying to go to grad school and were told, "Who will hire you if you graduate?" I don't think your hypothesis is serious.

I mean, go to school for what? What are you going to get an advanced degree in to get a job?

Posted by: me | Mar 5, 2008 2:24:44 PM

I doubt graduate school explains this. The majority of graduate students I've known held teaching or research assistantships or worked in school institutions (labs and libraries) while in graduate school -- they would thus be counted as working.

Posted by: AlanY | Mar 5, 2008 2:32:00 PM

I have an acquaintance who assures me regardless of my pleadings against conspiracy theories that the current war is as much about government stoking a broken economy and providing production and work for much of the population.

There is truth in war and economics as we have seen time and again but it is more generally likely that global tensions due to under-opportunity and economics leads to conflict rather than war being a convenient 'goose' to the economy.

It is under-opportunity that tends to create an agitated male population. Re the constant trouble in the Middle East, wars erupting around the former crumbled Soviet satellites, potential unrest due to lack of opportunity in China, urban strife in the U.S., etc. It's not exactly rocket science that lack of opportunity creates social unrest.

So, what shall we see when global strife gets its sea legs this cycle?

Posted by: BDG123 | Mar 5, 2008 2:35:58 PM

December 2008

Sun	Mon	Tue	Wed	Thu	Fri	Sat
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