Is the Employment Picture Really Better Now than in 1933?

By now, we have all heard Uncle Sam’s latest announcement of a “U3” unemployment rate at 9.4. percent. Inquisitive minds have also made note of the “U6” rate, which includes “discouraged” and “marginally attached” individuals and now stands at 16.4 percent, or an astounding one in every six workers. For some time now, we have been told by experts and authority figures that the rising jobless figures are nowhere near Great Depression levels—Ben Bernanke reassured us of this himself at a Congressional hearing last year.

Notwithstanding the obvious fact that we are only 18 months into this downturn, whereas employment took almost four years to crater during the Depression, what are we to make of such claims?

We know that the jobless figure applies only to what the Bureau of Labor Statistics considers to be the labor force. Anyone not in the labor force is neither “employed” nor “unemployed” for government purposes. This universe of statistical non-entities consists of over one million members of the active duty military, over two million prisoners, over ten million full-time college students, around 50 million retirees, and tens of millions more who are either permanently unable or unwilling to work—including those who have, sadly, given welfare a bad name by turning it into what could be seen as a lifestyle or career choice.

Going into the Depression, all of these groups were very small. Few people “retired” in the modern sense; most simply died on the job. (This is quite easy to do when you live and work on a farm, as did one third of the U.S. population at the time.) People also did not live as long—very few made it into their late seventies. The military and prison population were much smaller even in relative terms. Welfare as we know it today did not exist—the only people entitled to a check were disabled veterans.

Moreover, almost everyone over 18 (and in many cases much younger than that) was gainfully employed in full-time, adult fashion, as colleges had not yet expanded to become the youth warehouses and engines of socialization (i.e. teaching kids how to live without mom and dad) that they are now.

Hence the vast social, economic, and demographic changes of the last eighty years may have diminished the size of the U.S. labor force, relative to the population as a whole. So instead of comparing today’s unemployment stats with those of the Depression, why not look at what economists refer to as the rate of workforce participation?

Compared to the Depression, and relative to population size, we now seem to have a smaller productive sector supporting a larger non-productive sector—and this is the case even if, for the sake of argument, we consider today’s legions of bureaucrats, government contractors, lawyers, lobbyists, and nonprofit activists (all of whom consume and redistribute but do not produce wealth) as “productive” simply by virtue of holding a job. In other words, the baseline workforce participation rate, going into this current downturn, could well be substantially lower than it was at the start of the Depression.

Put another way, although we had 25 percent unemployment at the height of the Depression in 1933, at that time virtually every single adult male (and more than a few females) either had a job or was expected to be seeking one, and was thus counted in the labor force.

How would the figures look today if Uncle Sam determined the unemployment rate like he did back then? Well, we do not know for sure, because other recent trends—namely the higher workforce participation of females and the rising dependence on undocumented immigrant labor—have acted to obscure our comparison. Nonetheless, again, it seems likely that overall workforce participation is lower now than it was 80 years ago. (Keep in mind that even a five percent dip puts a huge additional strain on government finances and on those still working.)

It is therefore irresponsible and foolish to say that the employment picture is much better now than during the Depression. There is insufficient empirical evidence to support that claim. All we can say for sure is that fewer people now are forced to work—because the government is much better at redistributing wealth than it was back then—and that the burdens of feeding and housing all members of society are falling on an ever-diminishing share of the population.

Moreover, as the “U3” and “U6” figures continue to shoot upwards, we could find ourselves with an employment picture that is worse than anything this nation has ever experienced, no matter how carefully the “headline” figure is massaged, and no matter how many of the “discouraged” jobless, or of those “marginally” working a mere ten hours a week, are counted as employed—which statistical techniques were not, incidentally, even in use during the Depression! So much for official reassurances.

Disclosure: No positions relevant to this article.

Comments

[redbaron:]

Good thoughts, well presented, and I agree with the main concepts. As I mentioned yesterday in another SA discussion on the unemployment rate, I quit using this statistic for economic activity measurement when calculation methodology was changed several years ago.

I was gainfully employed for 31 years, and was a member of the working class until 1996, when at the age of 54 my long time employer decided that I was no longer needed, and could legally downsize me without repurcussions. That event changed me forever, and my political attitude was adjusted to the left, from slightly to the right of center. I often wonder how others political attitudes have similarly changed as a result of similar events.

Jun 09 07:53 AM

[CaptainJJack:]

The biggest difference between the 30s and now is that we do not include farm employment in today's number. If we measured just non-farm employment in the 30s, the unemployment number would reach well into the 35% range.

Putting it differently, we could have zero unemployment TOMORROW.

All we would need do is outlaw farm machinery.

Jun 09 08:38 AM

[Ferdinand E...:]

This is a very interesting and well written paper. The problem is that age-wise I am almost certainly closer than the author to the depression generation, and so I don't have to believe what that gentleman believes. In addition there was a short period when I was a brilliant teacher of macroeconomics, however even if I had never opened a macro book I could never accept the author's bottom line. Things are bad now, however it seemed to me that it required a war to scale down the Depression.

I will admit though that the present government will have to do a lot of work to correct the mistakes of Mr Bush, and I for one hope that it doesn't attempt to solve the problems of the US while being overly concerned with the many shortcomings and woes of foreign friends and allies.

Jun 09 09:23 AM

[Quaker:]

I live in a farm area. There are VERY few Americans working on farms. I'd estimate maybe 1 in 10 during the off season and 1 in 30 during planting and harvesting. Everybody is Mexican and Guatemalan.

I also live in the northeast. A HUGE % of the population is either retired, (early) disabled, (BS) or working for government directly or institutions funded by government.

Jun 09 09:34 AM

[ain't no fo...:]

Not to worry, if things start to look worse we can just create about 400,000 new jobs monthly - from the birth/death model!

The nice thing about those "workers" is they don't put a strain on our existing infrastructure, and when they get "fired" they won't be eligible for unemployment benefits BECAUSE THEY NEVER FREAKING EXISTED IN THE FIRST PLACE!!!!!!!!!!!!!!!!!...

Jun 09 09:36 AM

[Alphameister:]

Intriguing article, though I don't think anyone could convincingly argue that the hardships related to today's unemployment comes close to matching that associated with unemployment during the 30s. When one member of a household loses a job today, chances are one or more other members of the household will remain employed and their income, combined with unemployment benefits for the out-of-work family member, ease the pain of adapting to a job loss.

Jun 09 09:36 AM

[Old Rick:]

redbaron sez: "I was gainfully employed for 31 years, and was a member of the working class until 1996, when at the age of 54 my long time employer decided that I was no longer needed, and could legally downsize me without repurcussions. That event changed me forever, and my political attitude was adjusted to the left, from slightly to the right of center."
----------------------...
So Red, because you got complacent in your work environment, did not keep up or improve your job skills, did not adapt to the emerging work environment of the late 90s, did not keep your ear to the ground to figure out what was coming, and then felt that the "Gummint" ought to protect your "right to a paycheck", you became a leftist? I'm the same age as you "red" and had a completely different experience. You seem typical of those who don't/didn't want to work too hard, but keep that paycheck coming in and when it stops, whine to the Government about "those terrible capitalists who lay off outdated 54 year-olds". By the way the article was pretty decent although it trys to compare an apple (for sale on the street corner by Red) to a radish.

Old_Rick, Age 67

Jun 09 10:33 AM

[TheReaper!:]

To find out where we really are in all this is pretty simple . Just watch the amount of money going to the government , in other words total tax receipts . It ain't pretty !

TheReaper!

Jun 09 10:48 AM

[dragonpaw:]

Gotta remember, the "job" most gov't higher-ups have is to " put on a happy face." Almost all gov't statistics are distortions (read; lies) to benefit those in power. Because the "Demo-gogues" are on top., they get to fib. The repubs have done the same. The lying left in the news media is much larger than the lying right. The lies at this point therefore are more greatly magnified.
No, I don't think that unemployment now is at previous depression levels. That said, most other reads put this number in the 15+% range, still terrible by any recent standards. How low we will go in the next year or two will be telling.
Although insiteful and provoking, "Big Jake's" numbers show that this and the last depression's are apples and oranges comparisons at this point. When we get closer to "apples -to-apples," his numbers may become frighteningly accurate.

Jun 09 11:03 AM

[Steve Owen:]

I enjoyed dragonpaw's comments, especially the first paragraph. Government is as unlikely as any leopard I know to change its spots.

I got into a discussion with a friend the other day about whether certain Kansas radicals were really "sound on the goose" (proslavery). When examining these historical contexts it is important not to overlay modern attitudes upon our ancestors. Similarly, times are different now than they were in the 30's. All that being said, it is an interesting article. I would like to see the author make a similar comparison to foreclosure rates now and then.

Jun 09 12:23 PM

[User 353732:]

Since the 1930s, the Govt. has used 2 successful ways to disguise the consequences of the true unemployment/underempl... rate.
1. Income transfers within(unemployment compensation; food, housing and energy subsidoes or gifts) and across generations( eg social security). This was once, a transfer of real income which means it was covered by tax revenues in various guises. This continues today and in a mild, short recession would suffice.
2. However, there is not and cannot be enough tax revenue to disguise the depression levels unemployment/underempl... Therefore, now the Government has taken to borrowing from the future in amounts that can only be described as suicidal(this is called debt financing of defcits so huge they are beyond the range of experience). Since it is not enough to pillage the present to cover up the true state of labor markets, the Govt. is now shamelessly plundering the future to finance current consumption.
Never has a Govt. stolen so much so fast from generations too young to defend themselves and yet unborn to bribe and pacify millions of American adults whose votes ensure the Govt can steal at whim.

The Govt, with the consent of the bribed, is leaving future American citizens with 2 choices: repudiate National debt and hence destroy America's global status or tax themselves into virtual servitude and endure a quality of life far lower than attained by Americans in the opening years of this century.
The choice is to be humiliated or impoverished. All because the Govt. in 2009 chooses financial delusion and economic prevarication over reality and truth.

Jun 09 12:34 PM

[dragonpaw:]

User 353732, you're right on target with both financial synopsis and sentiment. "We have seen the enemy, and he is US!" to requote Pogo.My only digressing thought; the cataclysm may well be at our door. See Martin Weiss (Money and Markets) and his many extensive
writings on what got us here. It's free. Please, I don't schill for anybody.

Jun 09 01:12 PM

[Graham and ...:]

Right on, big Jake. We all know that what passes for unemployment figures today are really "cooked."

Jun 09 01:29 PM

[Spartacuss:]

Ahhh, but the great Messiah promises us 2 chickens in every pot and 2 volkswagens in every garage, they belived the BS then and they beleive the BS now. When you consider most of the nation either works for government or is on welfare we see clearly that we get what we vote for and that includes being sold down the river. Enjoy!

Jun 09 02:24 PM

[Jimbo:]

I am loathe to publish an autobiography on this site but The Prophet Obama has already written two. I was born in 1929. My mother was divorced when I was 17 months old. From about 1936 to about 1939 we were migrant farm laborers, living with some "oakies" and "arkies" in the back of a stake body model A truck.My Christmas present in 1938 was a single navel Orange. I saw my mother beg 15 cents from a startled man in Albuquerque, New Mexico in 1939. I went to 39 schools between 1st. and 12th. grade. I recall my mother getting surplus food from the back of a truck. I recall seeing a newspaper ad for 10 men at a factory and 1,000 men would show up, hoping to be hired. Things began to improve about 1940 as we started gearing up for the war. National Guard divisions began to be called up in 1940 and I believe the draft began in 1940. Our youngest son, with a wife and three children has just been laid off. Many people are stressed right now but I believe things were much, much worse in the Depression. What I worry about is that we are a long way from emerging from THIS crisis!!

Jun 09 02:52 PM

[Bobco23:]

I was downsized in1997 at age 57. I went out and got another job. I still detest liberals.


On Jun 09 07:53 AM redbaron wrote:

> Good thoughts, well presented, and I agree with the main concepts.
> As I mentioned yesterday in another SA discussion on the unemployment
> rate, I quit using this statistic for economic activity measurement
> when calculation methodology was changed several years ago.
>
> I was gainfully employed for 31 years, and was a member of the working
> class until 1996, when at the age of 54 my long time employer decided
> that I was no longer needed, and could legally downsize me without
> repurcussions. That event changed me forever, and my political attitude
> was adjusted to the left, from slightly to the right of center. I
> often wonder how others political attitudes have similarly changed
> as a result of similar events.

Jun 09 10:27 PM

[Bobco23:]

Brilliant teacher of macroeconomics? Not likely. To pin the economic distress of today, the origin of which began after WW2 with the creation of the credit economy, on Bush is infantile.


On Jun 09 09:23 AM Ferdinand E. Banks wrote:

> This is a very interesting and well written paper. The problem is
> that age-wise I am almost certainly closer than the author to the
> depression generation, and so I don't have to believe what that gentleman
> believes. In addition there was a short period when I was a brilliant
> teacher of macroeconomics, however even if I had never opened a macro
> book I could never accept the author's bottom line. Things are bad
> now, however it seemed to me that it required a war to scale down
> the Depression.
>
> I will admit though that the present government will have to do a
> lot of work to correct the mistakes of Mr Bush, and I for one hope
> that it doesn't attempt to solve the problems of the US while being
> overly concerned with the many shortcomings and woes of foreign friends
> and allies.

Jun 09 10:31 PM

[Gregman2:]

Add internet and global manufacturing to the equation.

Jun 10 12:19 AM