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 Wednesday'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

Comments

[Bigdog56]

There may be a third explanation - men (and some women, but not as many), who are physically capable of working, who aren't working, and who have no itention of working. Generally, these folks are in their twenties and being supported by someone else (the government, their parents who won't make them leave the nest, or an over-burdened spouse). In other words, the lazy and irresponsible among us.

2008 Mar 06 05:37 AM

[liorio1]

If you delve into the stats a little bit deeper, you will find that the majority of "prime age men" have been locked out of the market. Why? Check the age profiles and see for yourself, but it should come as no surprise that as companies acquire, merge or downsize they tend to cut the highest costs first. Remember, cutting staff isn't about just salaries, but all those fringe benefits attached to the employee such as retirement and health plans. They do get more expensive as the employee gets older!

2008 Mar 06 07:29 AM

[notsosmart]

and the accumulated 5-6 weeks vacation that the new employee does not get.as you move UP you move closer to the door.

2008 Mar 06 10:01 AM

[sethian1]

What is entirely ignored in this brief article is the enormous number of young men (and now women) in prison, or in some part of the criminal justice process, as well as the great numbers of the urban underclass who are illiterate, uneducated (uneducable?), and engaged in criminal activities for their livelihood. It is estimated that illegal drugs sales are ~$65,000,000,000 annually. Can you imagine the number of street-corner peddlars, mules and processors that are involved in this enormous enterprise. Add to that the great number of people who are committing property crimes in order to live. And how about the millions of illegal aliens and their grown children, many of whom don't work, and the black rural poor who are forced out of the job market by illegals who will work for much less?

2008 Mar 06 10:19 AM

[Warren B. Mosler]

The jobless recovery has turned into the full employment recession.

Whatever the actual reason, the Fed points to studies showing the labor force participation rate should be trending down over time, and accepts this as highly probable. That means they probably take the side that demographics are causing an expected drop in the labor force.

They have said in speeches late last year that the unemployment rate was therefore more important than the new jobs created.

In fact, the .3 jump in unemployment in Dec. alarmed them and drove subsequent rate cuts.

Now we get to see if it's a symetric or assymetric influence on the Fed.

They believe that 4.75% is the 'full employment' rate and anything below that inflationary, so for all practical purposes we are already there.

Cutting rates into what they see as full employment during what has the appearance of an accelerating inflation- with most inflation expectation indicators flashing red- will likely alienate the remaining mainstream support they have for current policy.

2008 Mar 08 10:26 PM

[simplesimon]

compliment to sethian. There is a huge number of people off the radar. The employment stats have always neglected them. Gen.Westmoreland never counted the viet cong, or non uniofrm, civilian combatants in V/N, and they numbered in the millions. Stats should always be viewed with a jaundiced eye. The notion that a 'great industrial nation' such as ours can go on without being, in fact, and industrial nation-is another myth. What? Information/web technocrats( a vast flea market via ebay)/line cooks? This can all be thought of as morning fog, easily burned away by the first deep, prolonged recession. Throw in a dead auto and hosuing industry, and 50 million websites, and you can begin to see the efficacy-dilemna of e commerce.

2008 Mar 09 05:25 PM