Tuesday, January 22, 2013

The Unemployment Situation Is A Gooey Mess

I have stated before that unique situations created by the Great Recession have rendered some traditional economic indicators unreliable.  And I believe that the indicator that has been impacted the most is the Unemployment Rate reported by the U.S. Government.

Try Getting Your Hands Around This
This post was initially supposed to be an in depth analysis of the current Unemployment Rate.  Soon after starting my research, I found myself looking at a large pile of goo (if you are unemployed you may substitute “poo” for “goo” or probably a much stronger term).  There have been several articles recently about why the Unemployment Rate is not an accurate measurement of this labor market.  People are constantly trying to adjust the rate based on a single factor.  However there are many factors impacting the job market and these factors are very difficult to measure.
Sure, you can still calculate the Unemployment Rate percentage, but it is now just a statistic.  It is not an accurate indicator of the job market.  It is useless to put it on a historical chart.  The recessions of the past occurred primarily in a “blue-collar” labor force.  The recession hit, workers were laid-off.  The recovery begins and people returned to work, often at their previous jobs.  But the Great Recession hit all workers and created some dynamics that are very different.
The Unemployment Rate is greatly impacted by the number of people actively looking for work (the labor participation rate).  Many people have stopped looking for work, but for many different reasons.  For example, Fred the Engineer, age 59, was downsized from his job after 30 years with his company.  In previous recessions layoffs were based on seniority, but in the Great Recession they were based on salary.  Fred looked for a job, but nobody needs an aging engineer in a slow economy, so after exhausting his severance and unemployment benefits, he decides to retire at age 62.  He is not counted as “unemployed”, but he is a “forced” retiree and would gladly be working if a job were available.
The labor participation rate is being impacted by these “forced retirees”, people going on “disability” due to the more lenient government standards, the discouraged workers who have temporarily stopped looking due to the tepid job market.  There are also “mismatched workers” whose jobs were eliminated by new technology and who lack the skills to function in the new economy.  If these people are younger, they may drop out of the labor force to be reeducated, if they are older, they often become the long-term unemployed.  And of course you have the “benefit riders” that ride their benefits out to the end, before seriously looking for work.
The great majority of unemployed people are actively searching for work and hate being without a job.  However, in 2011 a construction worker told me he wasn’t really seeking work because he was on the “Obama Plan” and was enjoying his extended unemployment benefits.  Miraculously, he found a new job just weeks after his benefits ran out.  So yes, it is true as many others have pointed out: If you pay people to be unemployed, you get more unemployed people.
Another factor that is difficult to measure is the thousands of college graduates of the last five years who cannot find jobs in their field of study.  They either have no job or are woefully “under-employed” which may mean a job in fast food.  The underemployed (which aren’t accurately measured) also include the “Fred the Engineers” who are not old or wealthy enough to retire and are working full time at the local telemarking firm.  It is taking some professionals longer than four years to return to work in their field.
Since the Unemployment Rate is currently of marginal value, we are left with the monthly jobs reports (from the government and ADP).  And this measures the number of jobs creted, not the quality of these jobs.  Replacing a manufacturing job with a call center job is not an even swap.
The latest government report said 155,000 jobs were created in December.  This rate of job growth is woefully inadequate to provide for the millions of people seeking work (or better work).  I am hearing about more layoffs and hiring freezes from my local contacts.  And the current plan for creating more jobs is “there is no plan”.  
We need more precise information to better gauge and track the employment/unemployment situation.  Employment surveys need to ask people the reason they are not seeking employment, if they would work if a job was available, and whether they are “underemployed” if they have a job.  There is an opportunity here for a university or survey firm to create a new index.  Hey, that would even create a few more jobs!



  1. Sad, but true, Don. For months we've heard about how the unemployment picture here in Ohio is ahead of much of the country. This past weekend, they finally admitted in the Beacon Journal 'business' section that our numbers have dropped due to those dropping out of the employment picture.

    The vast numbers of unemployed Boomers near retirement are among that group unable to find sufficient employment, yet not quite old enough or financially stable enough for early retirement. Until we stop paying people to remain unemployed for long periods of time , it is doubtful this economy will turn around any time soon. Thanks for your insights.

    Terri Maurer
    Maurer Consulting Group

  2. It's not good to take advantage of unemployment benefits. Like many laws that wasn't the intent. However, if you are working for years and pay income tax, some of the money should go for unemployment insurance. The workers earned it. People have health insurance, car insurance, etc. Why not unemployment insurance? We can't live off the land anymore. People are dependent upon work. I realize that employers pay the tax for it to encourage them not to lay off people, but it should be the employees that pay the tax for it. Employees pay income taxes anyways why not get some benefit from the taxes they pay.

  3. the BLS labor statistics are horrible and are not compareable or useable to pre Clinton era numbers due to major changes in methodology. GDP is overstated due to understated inflation since the 1990s. Inflation is really 3.5% to maintain the same living standard without subsitution ie. hamberger for steak or the increased cost of government which is excluded for example. So if real GDP "growth" is 1.5% backing out 2% for inflation than actual GDP is 0% if the real inflation rate is 3.5%