Is Unemployment Really Down?

unemployment_cartoonWe recently heard President Obama tout the new unemployment figures as being 9.4 % – down from 9.5%.  Several news stories and pundits have expounded on the “real” unemployment figure being much higher.  The problem lies in the way that the government reports the unemployment figures – taking into account only those that are currently on unemployment with no mention of those who are not employed but not on government unemployment. 

 

 

From The Street:

The official unemployment rate is determined by a body count. It does not differentiate between a person who works a full work week (nominally 40 hours), a reduced full-time work week (say 35 hours) and someone who works part-time (less than 35 hour per week). If the unemployment rate was calculated from total hours worked, the DOL data would produce an unemployment rate of 14.3%, defining a full work week as 40 hours. This is a decline from 14.5% for June.

Regardless of how this figure has been calculated in the past, and I fully assume that this is a normal way of doing things (meaning it probably was done the same way in the evil Bush administration) – it seems a bit misleading.   Don’t get me wrong, that rate going down is a great thing, but let’s not fool ourselves that things are better than they have been in the past.

The Heritage Foundation posted some interesting graphs back in 2004 to really dissect the unemployment rate.  The first chart shows the reported figures dating back to the late 70’s.   As you can see from the graph the highest spike in unemployment mimics downturns in the economy – not rocket science.

 

unemployment-graph

 

 When you compare this graph superimposed with other items taken into account, it brings a little different picture to the plate. 

unempcompare

 

From the Heritage Foundation article:

The unemployment rate is the preeminent measure of the intensity of labor demand. When the rate dips below what economists consider the “full-employment” rate of around 5 or 5.5 percent, then the labor market is likely overheating, driving up inflation.

But some critics contend the current (2004) low rate of 5.4 percent is a mirage because it neglects to include all the discouraged workers. The problem with that argument is the fact that BLS counts discouraged workers and even publishes an alternative “underemployment rate” called U-4, which is barely higher than the official rate. There are no more discouraged workers today then there were in the mid-1990s.

 

So what’s my point.  My point is that the problem of unemployment is a much greater problem that the government tends to tell us.  How many people dropped off the unemployment doles?  How many people are “really” out of work.   As I have stated many times before, I’m not an economist, just an observer.  A curious observer.

Of course, this is just my opinion.

Rob’s Rant

Advertisements