We have NFP for February getting released Friday, and in light of that, I want to direct your attention to David Leonhardt’s very interesting article in today’s NYT. He covers a subject we have discussed around here ad nauseum: The Misleading Jobless Rate.
Over the years, TBP has looked at the Augmented unemployment rate, as well as the NILF issue (Not In Labor Force).
Here’s the money quote:
Over the last few decades, there has been an enormous increase in
the number of people who fall into the no man’s land of the labor
market that Carroll Wright created 130 years ago. These people are not
employed, but they also don’t fit the government’s definition of the
unemployed — those who “do not have a job, have actively looked for
work in the prior four weeks, and are currently available for work.”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 11 percent in 1998, 11 percent in 1988, 9
percent in 1978 and just 6 percent in 1968. (emphasis added)
How are these seemingly inopposite data sets co-existing? Leonhardt
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. They include retirees, as well as stay-at-home
parents, people caring for aging parents and others doing unpaid work.If growth in this group were the reason for the confusing
statistics, we wouldn’t need to worry. It would be perfectly fair to
say that unemployment was historically low.The 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.
Source:
Unemployed, and Skewing the Picture
David Leonhardt
NYT, March 5, 2008
http://www.nytimes.com/2008/03/05/business/05leonhardt.html
This is my situation exactly. I have both BS and MA from very fine schools, have 6 years of corporate work experience and as many working for myself. I can’t find a job!!! Most of the jobs that I find for which I am qualified pay what I was making nearly 10 years ago at my first position. So, I am a stay at home dad for now. I would love to work, but I am not going to work 70 hours a week for a salary that when divided out for an hourly calculation pays what Fast Food Joint pays! Then I have to find day care and pay for $ gas. It is very frustrating. When housing has doubled, gas is outrageous, food is a fortune and the salaries are exactly what they were 10 years ago? What the????
If the military ever scales back in Iraq (totally a pipe dream IMO) how is that going to affect the numbers???
Just come up with another methodology to exclude them too?
That is a rhetorical question BTW
Ciao
MS
How is prison population counted in these stats?
1,000,000 in prison – an ever incrasing share of the pupulation – mostly men in working age – should be relevant in these numbers.
“Most of the jobs that I find for which I am qualified pay what I was making nearly 10 years ago at my first position.”
This is not consistent with wage inflation and neither is the”second possible explanation” in the NYT story.
Can’t find the reference now but ISTR that on a per capita basis the US has the largest prison population in the world: If accurate that might fit into Leonhardt’s “second possible explanation” I suppose but it should be included in any case as ‘b’ mentions.
From a ‘bigger picture’ perspective the trend Leonhardt refers to seems inevitable doesn’t it? Under what circumstances would growth in employment increase when technological replacement (of human workers), productivity and population are increasing too?
Might include wage/labor arbitrage in that also although it is not clear to me that is still growing, at least at the rate it was a few years ago (I recently read an article describing the difficulty several Chinese companies were having locating and/or successfully hiring skilled workers).
What about all the illegal workers in this country? Are they figured into the numbers?
I’m grateful to the government that they respect us enough to lie to us with bogus statistics and walla walla bing bang data. When they just come out with the truth and challenge you with a “So what?”, then it’s time to worry.
It would be interesting to look at the sub-cohorts within the 25-54 %employed group.
One hypothesis might be that there’s been a long term trend to persuit of (and necessity for) graduate degrees to gain access to careers. This could be tested by looking at employment ratios specifically for those of typical grad school age.
I find the whole – “would like to work and qualified but not looking” argument implausiable. It goes against Maslow and any other common sense theory. If they’re not looking they must not need to work. I think far more people are working unofficially (like my brother who contracts himself out as a finishings worker/construction) than anyone gives enough credit for. People are working, they’re just working in differnet ways. IMHO.
This is classic mainstream media hit and run journalism. Look at two numbers, find a comparison, speculate on just a couple of explanations, and come down on the side of the most pessimistic.
And then there’s the fact that the reporter can’t read the charts — or is looking at numbers he doesn’t deign to share with us or simply can’t explain well. Leonardt says
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. . . .
but the chart shows just the opposite! In 1983, the number was 15%, the high water mark of the period shown!!
And are we comparing decades to decades? Well, last I looked at the calendar, this decade had two more years to go.
Like most journalists, and even business journalists, Leonhardt is innumerate. What is he measuring when he wrote those paragraphs? I can’t tell, and I daresay even a shrewd quanty guy like Barry can’t tell.
This is a complex issue that deserves the brain of competent economist. You just don’t throw out two numbers, throw a comment or two, and maybe an anecdote, and then be done with it.
For example 23-54 is a very wide age range. Is it higher at the lower end of the range or lower? Or evenly distributed? How many heads of households fall into this group? (Since speculation is the order of the day, I will speculate that many of those who fall into the category are younger non-heads of households. But at least I ADMIT it’s speculation.)
And what about correlation with household net worth? Are those who choose not to work generally richer? Or poorer? And how has that changed over time?
And what in fact are the NOMINAL numbers? Percentages are incomplete unless we know the real numbers.
I know this a blog, and blogs link to other stories, and they typically link to other stories that are sympathetic to the general views of the blog author (in this case, bearishness). That’s fine. That’s why I like Barry’s blog and come here often.
But as a piece of really useful analysis, the NYT article is a joke.
I haven’t made a equity investment in over a year. I guess I’m not an investor.
ABK – buy the rumor, sell the news.
Somedays I think the only traders left are me and the computers…
Adam,
You are right. However, subsistence work doesn’t mean job aecurity, savings for retirement or a stable economy. All this flux breeds dislocations which, while benefiting a few well positioned individuals, harms society as a whole. We don’t want job security because people are lazy or lack initiative. Employment security is the mental health of a country. It might be boring, but it beats anarchy.
I agree Karl, as I’ve mentioned elsewhere, I think this will shake out with net worth (one way or another).
I took some time off with my dot-com winnings, but I didn’t put them into house-flipping like some of my peers(!).
(I guess that last part is a caution .. you can start in “group one” and end in “group two” if you don’t manage risk properly.)
I stopped working in the summer of 2001. Since then I have sold all my investments, paid off all my debts and now have a very liquid position.
I didn’t want to help participate in an economy where con-artists and grifters have risen into leadership positions of everything-everywhere that’s USA.
I’m just sitting here watching the wheels turn round and round.
It depends on you definition of unemployed and under employed.
European contries have a different social system and ‘count’ differently. Unemployment rates in France/Germany are reported to be much high even though their GDP growth is similar to ours.
I’ll take a stab and say inflation is probably 6 to 8% and unemployment is closer to 6 to 7%. I know our Gov. would disagree but then they have 4 martini lunches.
I’m not trying to be negative or cynical. I just want to be on the reality page.
If the military ever scales back in Iraq (totally a pipe dream IMO) how is that going to affect the numbers???
Posted by: michael schumacher | Mar 5, 2008 11:40:45 AM
_______
You’ve got it backwards. The unemployed will fill the ranks of the military when we use the ultimate economic stimulus package – war – to get ourselves out of this mess.
If anyone’s interested, this Dallas fed piece puts a bit more meat on the bones.
Charts 2 suggests early retirements aren’t contributing to the declining participation rate, as participation rates in older workers is increasing. Chart 3 suggests much of the decline is in younger workers, and in particular among those enrolled in school.
Also interesting but not directly on point is the info in table 2, which suggests the correlation between GDP growth and participation rates is strongest with a 3 to 4 quarter lag. Assuming that holds, we shouldn’t expect the effects of the recent slowdown on participation rates to peak until later in 2008.
MS,
“If the military ever scales back in Iraq (totally a pipe dream IMO) how is that going to affect the numbers???”
Back in the ’80s, the Reagan administration started counting those in the military as “employed”, in a desperate attempt to put lipstick on the pig of their failed economic policies. Since the military categorizes those who leave as still “active” for a number of years after, it’s unlikely to impact the official numbers for quite some time.
Of course, even more joblessness will prevail as the realty.
.
I would like to work and am qualified but not looking. I also don’t need to work, but that is because my needs are few. I have no desire to move, commute hours, or work for what earned a decade ago. I work around the house. It isn’t renumerative but it is freeing.
U-6 is almost 9%
I’ve got the answer…gubmint buys up foreclosed McMansions for pennies on the dollar and hires millions of unemployed to remodel ’em into halfway houses, thus alleviating prison overcrowding. Only problem is you then need to staff ’em and in CA the average prison guard (qualifications: high school diploma and no felony convictions) makes about 70K a year, before OT – I kid you not.
What Matt said is basically my story. IBM sent my job to India in 2001 and contrary to popular belief, if you are fired (even if one of 50,000), you are considered not employable any where else. I mean, IBM complains about no talent so if you were fired you must be useless.
I have 4 years of grad school and did not invest in that education to be offered a job for $30,000 a year. Much less than half of what I used to make and the benefits aren’t there either.
“It would be interesting to look at the sub-cohorts within the 25-54 %employed group.
One hypothesis might be that there’s been a long term trend to pursuit of (and necessity for) graduate degrees to gain access to careers. This could be tested by looking at employment ratios specifically for those of typical grad school age.”
I have read of older people trying to go to grad school and were told, “Who will hire you if you graduate?” I don’t think your hypothesis is serious.
I mean, go to school for what? What are you going to get an advanced degree in to get a job?
I doubt graduate school explains this. The majority of graduate students I’ve known held teaching or research assistantships or worked in school institutions (labs and libraries) while in graduate school — they would thus be counted as working.
I have an acquaintance who assures me regardless of my pleadings against conspiracy theories that the current war is as much about government stoking a broken economy and providing production and work for much of the population.
There is truth in war and economics as we have seen time and again but it is more generally likely that global tensions due to under-opportunity and economics leads to conflict rather than war being a convenient ‘goose’ to the economy.
It is under-opportunity that tends to create an agitated male population. Re the constant trouble in the Middle East, wars erupting around the former crumbled Soviet satellites, potential unrest due to lack of opportunity in China, urban strife in the U.S., etc. It’s not exactly rocket science that lack of opportunity creates social unrest.
So, what shall we see when global strife gets its sea legs this cycle?
“This is a complex issue that deserves the brain of competent economist.”…
…”But as a piece of really useful analysis, the NYT article is a joke.”
Hey Karl K,
The reason stereo types and anecdotal citations occur so often in life is that they are useful tools. And like in any trade you make, an idea is only as useful as the immediate circumstances warrant. It may work it may not. My point is that you may be right in general but before you commit yourself to such a strong opinion, make sure you have covered enough analytical ground…especially sample size.
I was a member of an entire industry that downsized people for the past decade. I watched the first four or five rounds then went myself instead of fighting for shrinking scraps over time. The hypothesis is a good one in my eyes. And while I have spent years re-tooling much has not returned to how it was before. I am no victim nor are economists likely to add anything meaningful to it in my eyes. The issue transcends finance and education for anyone involved in a life changing circumstance. And yes, I know a lot of people who make less than half what they did for many years. I have taken the time to understand it in social terms and can tell you an economist’s perspective is more likely to miss the point…and also tee up a good joke or two.
Here’s another reason – the number of people working as independent contractors or under 1099’s has probably gone up in the last few decades. It’s harder (or impossible?) to file an unemployment claim when you weren’t officially a full time employee.
Hey D,
Maybe the reason stereotypes and anecdote are useful tools is that so many people rely on them rather than bothering with the big picture ;-)
The only numbers I believe in are those which can’t be “spun”. Such as the dollar index, agriculture, oil, bond rates and precious metals. It is akin to reading the book before the movie is released.
The US Archipelago Gulag is very impressive indeed.
You have 10 times more imprisoned people per capita than most of the European Union countries.
It should reflect positively in unemployment figures in the USA.
Vj this for you. When I was in the military during the later part of the Reagan Administration I sure thought I had a job. I also thought I paid federal income tax too. But maybe that was a clever Reaganite trick to make me think I had a job. Evil B@#$ard, that Reagan was. I was also a member of the “inactive reserve” after I left active duty-NOT counted as active in any way. This was part of the contract I signed and as it turned out required nothing from me and rewarded me only with a few reserve points. I’m sure this didn’t pump up employment figures because I briefly collected unemployment just after leaving active duty.
michael schumacher,
Since Vj lacked the knowledge to answer your question I will. If every US soldier left Iraq their units would return to barracks most likely in the United States. They would continue to be employed by the US Government until their contracts expired and thus would not affect the unemployment rate in any way. After their contracts expire and they return to the civilian job market they will affect the unemployment rate the same way discharged veterans do now. Hope that helps you.
Check the local farmers markets and all of the flea markets and you will see tons of people that are “getting by”. they will tell you that they are happy but put a job w/ benefits in front of them and you will never see them at the market again.
Aurora Borealis,
As a proud inmate of the American Gulag I am thrilled that our archipelago is so impressive. It is much better to have criminals locked up than allowed to wander free as in Europe where they occupy their time by burning cars, burglarizing law abiding citizens and generally making mayhem. But if that’s what Europeans want, have at it. Whoops! I didn’t mean to imply that the people running Europe care about what the people want. Sorry!
From the KC Star Workspace blog a few days ago:
http://workspacekc.typepad.com/workspace_by_diane_staffo/2008/03/why-this-years.html
“… even companies that are laying off employees at “higher levels” of the organization are hiring. “These companies need good talent now more than anything. They are getting good, young talent for a fraction of what they are paying an older worker who has been with the company for 10 years.””
People with 10 years on the job are “older workers”? The 32 year old is now over the hill?
America has lost it’s collective mind.
Excuse me for interrupting.
Xennady,
“Vj this for you. When I was in the military during the later part of the Reagan Administration I sure thought I had a job. I also thought I paid federal income tax too. But maybe that was a clever Reaganite trick to make me think I had a job. Evil B@#$ard, that Reagan was.”
Only problem with your little rant is that members of the military were not counted as employed prior to Reagan.
“I was also a member of the ‘inactive reserve’ after I left active duty-NOT counted as active in any way.”
They can call your ass back any time they want until the time period is over. Just ask those that have been out for a year or more and were ordered to Iraq.
.
The underground (cash, no taxes, no statistics) economy. This is why we need a VAT and abolishment of the FIT and IRS.
I, too, am one of the uncounted. At 56 yr., I would like nothing better than to have a real job in industrial and/or construction, but this is year 3 of the search(& now only half heartedly). So I while away my time designing electronic circuits off the books and trading stocks to make ends meet. The job market has been horrible for so long that I think of myself as a member of the new off-grid underground economy of working retired. There are hundreds of people such as myself here in North Texas that I’ve met and probably thousands more.
I riles me to not be a fully contributing member of the countries economy, but what’s a person to do when the business structure doesn’t want anything but management or the unskilled.
I, too, am one of the uncounted. At 56 yr., I would like nothing better than to have a real job in industrial and/or construction, but this is year 3 of the search(& now only half heartedly). So I while away my time designing electronic circuits off the books and trading stocks to make ends meet. The job market has been horrible for so long that I think of myself as a member of the new off-grid underground economy of working retired. There are hundreds of people such as myself here in North Texas that I’ve met and probably thousands more.
I riles me to not be a fully contributing member of the countries economy, but what’s a person to do when the business structure doesn’t want anything but management or the unskilled.
A bit of information as to how the BLS counts someone as working:
Having worked in any paid capacity at least one day in a month.
Or working in an unpaid job for a family business.
There is no separation of part-time from full time in the employment figures.
In other words, the most minimal amount of labor is all that is needed to be counting as being a worker
I can point you to a welder and a machinist, both skilled and 50 something who counted on working until they were 60.
Both lost their $25/hr jobs with a plant closing in 2004. Both tried “new” jobs working at 1/3 their former wage in sub-standard working conditions, conditions so harsh you wouldn’t think they’d exist that way in 21st century America. Both gave it up and are now baby-sitting their grandkids “professionally”.
Neither one counts as “jobless” yet neither one is “employed”.
I remember the funny look on my old boss’s face the day he was “asked” to retire early. He was a 40 year “company man” and he’d never worked anywhere else. He thought he was still several years away from the rocking chair, when instead he was asked to clean out his desk and go home. He makes a living now with rental properties and on eBay. He doesn’t count as “jobless”.
I was a 40 something year old working engineer until 2004 when we closed our doors and I’ve worked as a contract engineer since. Since most of my income now comes with a 1099 form, I’m not really employed but I’m not unemployed either.
Yes, the jobless rate is misleading. Our data acquisition guys used to say, “no data is better than bad (misleading) data”.
Count me in that group. I lost the last job I had a few years ago., and since I have enough money, I decided to retire before I turned fifty. I enjoy spending all day with the family, and doing the things that I want to do.
Pragmatic,
“A bit of information as to how the BLS counts someone as working:
Having worked in any paid capacity at least one day in a month.
Or working in an unpaid job for a family business.
There is no separation of part-time from full time in the employment figures.
In other words, the most minimal amount of labor is all that is needed to be counting as being a worker”
Good point, and ANOTHER manipulation by the Reagan administration. Prior to Reagan, less than 40 hours/week and you were part-time.
The lengths they went to, to try and make it appear their policies were successful. Adding the military in as employed, changing the definition of work, masking the exploding budget deficits with trust funds, all the way to ketchup is a vegetable to purportedly provide nutrition for poor children. It still was a dismal failure, and the current administration has utilized even more ridiculous manipulations.
How can your economic principles have any validity if they require such levels of duplicity ?
.
You both miss the changes in population controls (as used in unemployment and other labor force estimates) related to race.
FOr white, employment/population still very high and does not go down.
See bls.gov table
Why would anyone consider this unusual? Jobs for the unskilled or lightly skilled have been going to Asia and Latin America for decades…our schools are now teaching to the lowest in the class, not the high achievers. Government subsidies are still easily available if you are not working, and many who drop out of school are not motived to be self starters…there is no “fire in their gut”…yes this is a generalization, but many will see themselves in these words….I would expect the unemployment rate to get worse before it gets better, and yes, those who have availed themselves of a school or technical training that increases their worth in the workplace will always have better prospects than those who don’t….
A bit of information as to how the BLS counts someone as working:
Having worked in any paid capacity at least one day in a month.
Or working in an unpaid job for a family business.
How does the BLS know if you are working for a family business? Survey?
Why can’t they call around with their survey and ask if you want to work but have given up????
Honestly, Barry this discussion needs to go on. I was the first responder to this article:
I am 30 something and haven’t worked in YEARS. I have a Bachelors degree and Masters degree form TOP schools and I am highly skilled, professional, look 10 years younger than my age – i.e., you would think I am very hirable, yet, as I mentioned before, I can’t get a job paying more than what I made 10 years ago which is not worth waking up for at the current cost of living level (vis-a-vis a decade ago).
I know MANY, MANY people in the same boat, mostly living off inheritance, 401(k), part-timing, or their own business (which pays nothing really after expenses).
Call it the highly educated poor.
From an economic standpoint it shows that our economic system is functioning at a highly inefficient level, not fully utilizing its recourses to full capacity. This is a huge story and needs further analysis.
I don’t mean to sound heartless, but anecdotes are not evidence for a generalized conclusion unless the generalized conclusion can be proven INDEPENDENT of them.
Into every life a little rain must fall, and for some, it can be a downpour. Yet are such a sizable group of people getting wet that we have a real problem here? I don’t know.
Look, everyone’s life has its own unique set of circumstances. What if I told you I have been laid off from two jobs, while I have a advanced business degree from one of the top universities in the nation? Boy, you might think that guy’s in deep.
Yet he’s not. There are lots for reasons he isn’t but one of them is a fundamental desire to remain economically productive.
This country has problems, but there’s a reason people are running through scorching deserts trying to get here. If you want economic success, there is no better place to be than the United States.
More on Unemployment Rates
Over the past few days, we’ve been discussing job creation and the various ways to think about unemployment. This has been a long standing theme around here (Augmented unemployment rate, as well as the NILF issue — Not In Labor Force). See the list at…
Estragon wrote
If anyone’s interested, this Dallas fed piece puts a bit more meat on the bones.
Good article. Thanks for linking to that.
Here’s another interesting insight that runs counter to the general drift of the Leonhardt article:
Another striking change in Chart 2 is the upturn in market participation among the 55 and over group. The increase followed almost a decade of flat participation rates among this group. What caused it? Research suggests that the rise in the labor force participation rate of older workers is due to a combination of factors. These include longer-term changes such as healthier and longer life spans, the decline in defined-benefit pension plans, changes to Social Security benefit rules, and the increased cost of health care.
Another example of why I retch every time I read some ******* like Billy Gates whining about a “lack of skilled workers.”
Instead of whining about for YEARS (I remember the same whining 10 years ago), you could put somme effort into hiring smart guys, training them for 6 months and paying them something decent.
Oh, then you’re worried about “turnover.” Again, pay something decent, and they won’t move to a new job. Retards.
Al,
“Why would anyone consider this unusual? … I would expect the unemployment rate to get worse before it gets better”
Seven years of negative job growth is not unusual enough for you ?
Just curious, how does it “get worse before it gets better” when it hasn’t been “better” since 2000 ?
.
How does the BLS know if you are working for a family business? Survey?
Yes, they use a survey. Nothing wrong with that, in fact, it’s the only realistic way that the BLS can make reasonable estimates (Although I would wish that they included their margin of error +/- when presenting the data.
The family “worker” counting goes back many decades, and has its roots in trying to estimate the number of people who were producing crops – the real employment in agriculture.
A side note: A much better indicator of the labor situation, in my opinion, is to look at changes in trend in the labor participation rates over time; the total percentage of all adults who are working.
Soon usa will be a third world country with two classes really rich and the working poor
Jobless vs. Unemployed
In today’s NYT, Floyd Norris hits on a subject that has been a favorite of ours over the years: Finding the true measure of the economy’s labor situation.The unemployment rate is low. The jobless rate is high.Those two seemingly contradictory statement…
I sympathise with a lot of the comments and personal stories here. I’m an IT manager, with 2 graduate degrees. I got laid off in 2001, during that tech bust, and it was a nightmare getting another job. ANY decent job. I ended up taking a position that paid less than half of what I was making. It took me 6 years to get back to what I was making in 2001.
But here’s the point I’d like to make: I notice that a lot of guys who used to make a bigshot salary won’t take a much lower position. It hurts their pride. So they sit at home or dink around with half-hearted “consulting” gigs. They thus lose their edge and make themselves even less employable. May I suggest sucking it up and taking the hit and making every effort to get ahead in your new company or consulting group or firm or whatever.
Good luck!