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Albert Sung is the author of the Katchum Macro-Economic Blog, monitoring breaking economic news from a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at... More
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  • Food Stamp Participation Rate: The Real Way To Measure Unemployment 0 comments
    Jan 26, 2013 1:18 PM

    I want to make sure that people comprehend the manipulation in the unemployment numbers.

    If we look at the unemployment rate in the U.S., it seems that everything is improving. U3 unemployment has dropped from 10% to 8% in the last two years. U6 unemployment came from 17% to 14% in 2 years.

    But all is not well if we look at another metric which is the percentage of people on food stamps. I think this metric is giving a much better view on the state of the U.S. jobs market (Chart 1). Chart 1 tells us that the declining U6 unemployment rate is BS as a record number of people are still making use of food stamps.

    If we compare the unemployment rate (Chart 2) against the percentage of the population on food stamps (Chart 3), we can see that there is a correlation here. In 1970 for example, the U3 unemployment rate was 5% with a food stamp percentage of 2%. Then we peaked in 1982 with a U3 unemployment rate of 10% and a food stamp percentage of 10%. The unemployment then dropped to 4% in 2000 with the food stamp percentage dropping to 6%. And since then the food stamp percentage has hit a record of 15% today.

    If the correlation is correct, we should now have a much higher unemployment rate than 8%. More like 14%. And more importantly, the real unemployment rate is not declining. The reason for this is that the percentage of people on food stamps is still at record highs of 15% for the population (and 19.3% for the non-institutional population) (Chart 3).



    (click to enlarge)
    Chart 2: U3 and U6 Unemployment

    So there you go, another correlation, one that accounts for underemployment by discouraged and part-time workers. We are in times of wage stagnation and will have difficult times up ahead.
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