The weak labor market

[Jason McCullough]

Good summary (http://delong.typepad.com/sdj/2008/03/why-the-unemplo.html).


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... just 6 percent in 1968.... [P]rime-age women.... About 27 percent of them don't hold a job today, up from 25 percent in early 2000.


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.... 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.


Various studies have shown that the new nonemployed are not mainly dot-com millionaires or stay-at-home dads... [but] those who have been left behind by the economic changes of the last generation... replaced by technology... gone overseas.... These nonemployed remain a distinct minority of the population. But the growth in their numbers is one reason that overall wage growth has been so weak lately.... [T]here is no doubt that the unemployment rate is a less telling measure than it once was. It's simply no longer the best barometer of the country's economic health. A truer picture can be found elsewhere, by looking at compensation growth, for instance, or to changes in the percentage of the employed...

[jpinard]

Unemployment rate numbers have been a crock for many years. A tool of whoever's in power to say "it's not so bad - look at unemployment!" The number of exceptions and twists they have to make the number lower than it really should be are unnerving.

Also... if a person had a full-time benefits job - loses it and has to choose between zero pay, and 20 hours a week at Wal-Mart - the govt's been counting that as a win for employment not consuidering the fact he lost damn near everything.

[SlyFrog]

Unemployment rate numbers have been a crock for many years. A tool of whoever's in power to say "it's not so bad - look at unemployment!" The number of exceptions and twists they have to make the number lower than it really should be are unnerving.

There are a lot of economic indicators like that. For example, many inflation indicators which remove little things like food and fuel from what is being measured. Because, you know, food and fuel don't really impact us that much, we should leave them out when we generally tell the public what is happening to the prices that change their lives.

[Tom McNamara]

Some interesting stuff from a recent CNN article on the topic (http://money.cnn.com/2008/03/07/news/economy/jobs_february/index.htm?cnn=yes):


Despite the loss, the unemployment rate improved to 4.8% from the 4.9% reading in January. Economists had forecast the unemployment rate would rise to 5%. A survey of households is used to estimate the unemployment rate, while a survey of employers that is considered to be more accurate sets the readings on the changes in payrolls.

The unemployment rate fell because of an increase of 450,000 people whom the government no longer counts as being part of the labor force for a variety of factors, such as that they are not currently looking for work. That drop in the size of the labor force allowed for he modest decline in unemployment, even as the household survey showed 255,000 fewer Americans with jobs than in January.

Hall conceded in his testimony Friday that the labor market was weaker than suggested by the decline in the unemployment rate. He pointing to an increase of 637,000 workers over the past 12 months who have part-time jobs but would prefer to be working full time.

He said the bureau's broadest measure of the unemployment rate, one which counts as unemployed both those part-time workers who want full-time jobs as well as those not searching for a job at the moment but who are interested in finding work, now stands at 8.9%, up from 8.1% a year ago.

"We've clearly had a broad weakening in the labor market," Hall testified. "This weakening in the labor market is not a sudden thing, it has been happening for over a year."

Rep. Elijah Cummings, who was chairing the hearing of Joint Economic Committee, suggested that Congress needed to do more to address the problems of unemployment. Some proposals: extended unemployment benefits and increased food stamps, as well as greater investment in infrastructure.

"Frankly I believe our economy stands poised on an uncertain cliff, threatening to throw our nation into a crisis," said Cummings. "We do not need to recite a litany of data to know our economy is struggling."

[Dirt]

Compensation growth has been great for CEO's. All the money has been going to the top 1% instead of compensating people at the bottom and in the middle. A CEO earning $100 million in stock options can pay for a lot of raises. A lot of employers seem to have forgotten how to invest in their work-force. Probably because it's become so easy to replace it.

[Anaxagoras]

There are a lot of economic indicators like that. For example, many inflation indicators which remove little things like food and fuel from what is being measured. Because, you know, food and fuel don't really impact us that much, we should leave them out when we generally tell the public what is happening to the prices that change their lives.

I've been seeing this misconception in the media a lot recently... lord only knows why it's becoming widespread now.

Fuel isn't included in the inflation indicator because it tends to be a commodity with wildly fluctuating prices. So, in order to stabilize the inflation indicator, economists very intentionally exclude fuel. If fuel price remains high for an extended period of time, its cost will be felt in the other goods that *are* counted by the inflation indicators, and it'll end up getting counted anyways.

So fuel isn't excluded to help politicians grandstand, but rather so that economists have a somewhat stable number that they can use in order to make macroeconomic decisions.

I would imagine that food is excluded for a similar reason.

[shift6]

Compensation growth has been great for CEO's. All the money has been going to the top 1% instead of compensating people at the bottom and in the middle. A CEO earning $100 million in stock options can pay for a lot of raises. A lot of employers seem to have forgotten how to invest in their work-force. Probably because it's become so easy to replace it.
Interesting that you brought up CEO pay. Today there's an article in the QSJ about Aflac's CEO who is, I guess, going to have his salary determined by the vote of his employees. I couldn't find a link to the online version, but here are some related articles:
http://www.google.com/search?hl=en&q=aflac+ceo+vote

[SlyFrog]

I've been seeing this misconception in the media a lot recently... lord only knows why it's becoming widespread now.

Fuel isn't included in the inflation indicator because it tends to be a commodity with wildly fluctuating prices. So, in order to stabilize the inflation indicator, economists very intentionally exclude fuel. If fuel price remains high for an extended period of time, its cost will be felt in the other goods that *are* counted by the inflation indicators, and it'll end up getting counted anyways.

So fuel isn't excluded to help politicians grandstand, but rather so that economists have a somewhat stable number that they can use in order to make macroeconomic decisions.

I would imagine that food is excluded for a similar reason.

Sounds like a false rationalization to me. So is metal. So are a large number of other things. Eventually, you can simply pick out the ones you think are convenient to exclude?

[Jasper]

The mystifying thing to me about "unemployment" is that it measures something other than unemployment. Everyone seems to know this, and yet it continues to be bandied about like it is meaningful.

Who's fault is this? The government? Business? Media? Lazy Population? I have no damn clue, but stop it already!

Clearly the proper number to use is total working age population over those working. "Unemployment Rate" is in serious need of a reframed name, but damn if I can think of one.

[Fooey]

The unemployment rate is a specific measure with a specific definition. Nobody's trying to fool anybody. There are plenty of other indicators of the labor market that are published. The BLS itself publishes a number of different versions of the unemployment rate with different definitions of who is considered unemployed. As mentioned above, the employment to population ratio is also an important measure of the state of the labor market. The straight unemployment rate is simply defined -- unemployed/(employed + unemployed). To be counted as unemployed under the standard definition you have to have actively looked for work at some point in the four week period leading up to and including the survey week (which is the calendar week that includes the 12th of the month).

Inflation measures do not exclude energy and food. There is a separate measure called core inflation that does. Economists and other people pay attention to both.

[Anaxagoras]

Inflation measures do not exclude energy and food. There is a separate measure called core inflation that does. Economists and other people pay attention to both.

I assumed we were talking about the core inflation. What other commonly used "inflation measure" is there? (Honest question... I'm not exactly an economics guru.)


Sounds like a false rationalization to me. So is metal. So are a large number of other things. Eventually, you can simply pick out the ones you think are convenient to exclude?
No... you "eventually" pick out the ones that cause your core inflation number to bounce all over the place. And you don't randomly add & remove products from the core inflation basket... you keep as consistent a basket as you can in order to make the index as meaningful as possible.

[SlyFrog]

I assumed we were talking about the core inflation. What other commonly used "inflation measure" is there? (Honest question... I'm not exactly an economics guru.)



No... you "eventually" pick out the ones that cause your core inflation number to bounce all over the place. And you don't randomly add & remove products from the core inflation basket... you keep as consistent a basket as you can in order to make the index as meaningful as possible.

Fooey has shown why you have missed my point. We do measure inflation including energy and food. Which metric is used often appears to be dependent on what the user wants to show (to be nice) or how much they want to deceive (to not be nice). Or sometimes they are just too stupid to even know there is a different metric, and they just call them all "inflation." Reporters aren't necessarily economics gurus either.

[Fooey]

One thing to take note of in today's employment report -- the unemployment rate fell to 4.8% from 4.9%, but the number of people employed fell 255,000 in the separate survey (called the household survey) used to measure the unemployment rate (the other survey, with a vastly larger sample size but somewhat narrower definitional scope called the establishment survey is the one that gets reported as the headline jobs number and was down 63,000). The only reason the unemployment rate fell is because the labor force declined more than the the number of employed people, by 450,000. So the unemployment rate fell only because more people stopped looking for work than lost their jobs. It's very likely we are currently in a recession and it could be a bad one given how severe the credit crunch in the financial sector seems to be getting.

[drewl]

Ask the IRS, they know who is working.....
After tax season let them figure out the true unemployment rate and more importantly the under-employment rate, the poor souls working at Walmart that used to have real jobs.
I think if those figures were known it would scare to many people.