Saturday, April 27, 2013

THE RECESSON NEVER ENDED, DUH: THE REALLY REAL UNEMPLOYMENT RATE

THE RECESSION NEVER ENDED, DUH:
THE REALLY REAL UNEMPLOYMENT RATE
NOTE: BOLDED TEXT IS MY EMPHASIS




Unemployment fell to 7.8% in September [2012]. But that doesn't mean the other 92.2% of adults are working.



Every month, the Bureau of Labor Statistics in the US Department of Labor releases six measures of unemployment, numbered U-1 through U-6. The figure U-3 is the measure most often referred to in the media. Here are the definitions:
  • U-1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force.
  • U-2: U-1 plus persons who lost their jobs and persons who completed temporary jobs, as a percent of the civilian labor force.
  • U-3: U-2 plus total unemployed, as a percent of the civilian labor force ("official" unemployment rate).
  • U-4: U-3 plus discouraged workers, as a percent of the civilian labor force [J-VICTUS NOTE: FOR CLARITY, A DISCOURAGED WORKER IS SIMPLY ONE WHO IS NO LONGER LOOKING FOR WORK. HOWEVER, STATISTICALLY SPEAKING, WORKERS ENTER THIS CATEGORY AFTER THEIR ELIGIBILITY FOR UNEMPLOYMENT BENEFITS ENDS BECAUSE AN ACTIVE JOB SEARCH IS A PRE-REQUISITE TO OBTAINING AND MAINTAINING UNEMPLOYMENT BENEFITS].
  • U-5: U-4 plus all other persons marginally attached to the labor force, as a percent of the civilian labor force [J-VICTUS NOTE: "marginally attached" includes both discouraged workers and workers who may or may not have part-time work, but are seeking full time work, a situation referred to as underemployment].
  • U-6: U-5 plus total employed part time for economic reasons, as a percent of the civilian labor force. 


It is plainly insufficient and misleading to emphasize the U-3 figure over the subsequent and more inclusive measures which provide a clearer and more complete picture of the state of the labor markets. Notice the slippery language such as "total unemployed" and "as a percentage of the civilian labor force." This sounds inclusive, but under their legal definitions is actually not. The civilian labor force only counts those who are actively looking for work.



The National Bureau of Economic Research is the unofficial recession start-and-end time authority. They say that the recession started in December 2007 and ended in June 2009. Yet the U-6 number continued to climb into January 2010. This is due to their extremely broad definition of "recession":

A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.



In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. 


If NBER wants to play games and suggest that another downturn would be a separate disaster from the latest recession, fine. But one should note the Recession of 1937, which took place, according to some economic historians, during the Great Depression.


Among those who oppose government intervention in the economy due to its generally deleterious effects, it is quite popular (and correct) to emphasize the U-6 number as the so-called "real unemployment rate." 


According to the BLS, the latest official U-3 unemployment rate is 7.6%. It reached its peak in October 2009 at 10.1%. Meanwhile, the latest U-6 rate is at 13.9%. In January 2010, it reached its peak at 18%. So even if we aren't improving, at least we are down from the peak, right? Nope.

There is yet another measure (the really real unemployment rate) that shows us even more about the true state of the labor markets. That is the Employment-to-Population Ratio/Rate. It is quite straightforward. It is simply the rate of the working age population (generally defined as ages 16 to 64) that is actually working (on the books, that is). The relatively steady working age population is the standard here, rather than the deceptive and constantly and rapidly fluctuating "civilian labor force" which may fall due to the cessation of a job search and exhaustion of all unemployment benefits, not job creation.



Such data began to be compiled in January 1948, when the rate was 56.6%. It's lowest point was 54.9% in October of 1949. It's peak was reached in April 2000 at 64.7%.

This measure does not concern nor does it have any implications regarding the reasons for not working like the U-4 through U-6 statistics (discouragement). It simply notes that they are not working. As well, it must be made clear that unlike the U-1 through U-6 measures, where a higher percentage is a bad thing, as the Employment-to-Population Rate falls and stays fallen it should be cause for alarmHere are the working age population figures from 2007 to 2011:

  • 2007: 231,867,000
  • 2008: 233,788,000
  • 2009: 235,801,000
  • 2010: 237,830,000
  • 2011: 239,618,000


The situation is dire. The working age population continues to grow while the number of jobs falls and the real wages of those who have jobs continue to decline.

In December 2007, which is when NBER declares the recession to have started, the Employment-to-Population Ratio was 62.7%. In June 2009, when NBER declared it to be over, it was at 59.4%. The working age population grows and grows, but job creation sputters. Even using the lowest of the lot, 2007's figures) a 3.3% drop is massive, approximately 7.5 million.  



It is both tragic and comical to note that the Employment to Population Ratio continued to fall for many months after the supposed end of the recession in June 2009. As of April 2013, it stands at 58.6% [NOVEMBER 12TH, 2015 EDIT: THE RATE IS CURRENTLY 59.3%, STILL BELOW THE 62.7% FIGURE FROM DECEMBER 2007, NBER'S RECESSION STARTING POINT]. The true asininity of the suggestion that the recession ended in June 2009 is that not only did the rate continue to drop, but in the nearly four years [NOVEMBER 12TH, 2015 EDIT: NOW OVER SIX YEARS] since NBER said the recession is over, the rate has not even risen to the lowest point of their official recession.



And to show just how important that is, consider this graph which goes back to the 1940's:




This is unprecedented. Since the 1940's, we have had 10 official recessions. After each one, the ratio recovers. it is only during the current malaise that there has been no improvement. We continue with an Employment-to-Population Rate that was seen in the 1970's and 1980's. Why? The Great Recession (which I recommend calling The Lesser Depression) never ended.

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