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Commentary

Fuzzy Unemployment Math


     
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2009 was a bad year, but it wasn't 1933

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With another 85,000 net jobs lost in December and the unemployment rate still at 10 percent, some in Washington are calling for additional measures to stimulate the economy.

But what makes anybody think additional government spending will be any more effective than the hundreds of billions Washington already has spent?

I have no desire to minimize the severity of unemployment or the hardship it causes. Most of us have had to deal with it at some time. But the statistics also provide a lot of wiggle room for manipulation and mischief.

Since 1940, the Bureau of Labor Statistics (BLS) has provided a variety of information on the population’s employment status, derived from the Current Population Survey, a complicated monthly random sample of approximately 60,000 households used to compute various measures of the unemployment rate.

For the past two months, for example, the rate designated U-3—“total unemployed, as a percent of the civilian labor force (official unemployment rate)”—has stood at 10 percent. In October, it was 10.2 percent. Those “official” unemployed are basically those who are not working but have attempted to find a job in the past four weeks.

The broadest measure of unemployment is “U-6.” BLS defines this as “total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.” This rate stands at 17.3 percent.

There’s more to the story. A note attached to the BLS research explains: “Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market-related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.”

One doesn’t need to devote a lifetime to studying how these statistics are defined and measured to realize that they tend to overstate unemployment.

For example, people designated U-3—or officially unemployed—can have taken any number of actions to qualify as having actively sought a job over the past four weeks, including (1) “contacting: an employer directly or having a job interview; a public or private employment agency; friends or relatives; a school or university employment center”; (2) “sending out resumes or filling out applications”; (3) “placing or answering advertisements”; (4) “checking union or professional registers”; and (5) “some other means of active job search.”

So, if you are out of work and tell CPS data collectors that three weeks ago you asked Uncle Charlie whether he knew of any jobs, you qualify as officially unemployed. Many of those classified as “marginally attached workers” and included in the U-6 measure are even more questionable. After all, they admit they are neither working nor actively searching. Merely saying “they want and are available for a job” but have looked though not in a month, doesn’t show much interest in employment.

Many commentators have insisted from the onset of the recession that we have plunged into a second Great Depression. The evidence so far does not confirm such severity.

By taking an extremely loose view of what constitutes unemployment, we can say that perhaps one worker in six is out of work. But in 1933, the official unemployment rate was nearly 25 percent, and perhaps another 25 percent of the labor force was made up of persons working part-time who wanted full-time work. So the U-6 rate then was close to 50 percent.

Last year may not have been the best of years, but it was miles away from 1933.


Robert Higgs is Senior Fellow in Political Economy at The Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. He is the author of many books, including Depression, War, and Cold War.

Full Biography and Recent Publications

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