Saturday, September 4, 2010

jobs, the great recession, and understating unemployment

Check out the chart I found (click chart for a larger image). It looks at employment changes in different recessions. There are problems with comparing labor markets from different time periods. However, these problems are minimized by looking at a) employment (unemployment numbers can get funky) and b) percentage losses in jobs (this sort of normalizes the data).

You can see why the recent downturn was nicknamed the Great Recession.

There are too many problems with the unemployment rate for it to be very useful. In a downturn the unemployment rate understates unemployment. This understatement is even worse in a severe downturn like the recent Great Recession.

If you can put up with a bit of an explanation as to why, I'll show you some numbers that give a better picture of how bad things are.

A person is only classified as "unemployed" if that person a) did not work for one hour or more for pay in the week previous to the survey and b) also actively sought employment.

[NOTE: This definition of unemployment has absolutely nothing to do with whether someone is eligible for unemployment benefits.]

This overlooks some people like part-timer workers who lost full-time jobs or desire full-time jobs. In a sense they are only partially employed and therefore are also partially unemployed. The unemployment stats make no allowance for these folks.

If someone gives up looking for work (the so-called discouraged worker), or is otherwise able and willing to work but didn't look for a job, then this person is not counted as unemployed. Most would consider people like this as part of the labor force but they are not counted as such.

Now let's see how this biases the numbers.

The published unemployment rate for August 2010 is 9.6%. (BTW, 5.5 of this 9.6, a majority of the official unemployed, have been unemployed for 15 weeks or more. This is quite high but still doesn't get at the severity of the problem.)

If you include all people who are out of work but willing and able to work, whether actively looking for a job or not, the unemployment rate would climb to 11.0%.

If you also include those who took part-time rather than full-time jobs for economic reasons, then the unemployment rate would jump to 16.7%.

9.6% vs. 16.7%. A more reasonable statistic of unemployment would be over 7 percent points higher. In a sense this means unemployment may be 74% higher than the official rate indicates.

It ain't even close.

Be blessed,
RB

[source of statistics]

1 comment:

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