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Friday, May 3, 2013

World's Most Misleading Economic Term? "Unemployment"

I've already aired my frustration with the usage of the economic indicator called "unemployment", but a story just came out that further proves my point (and annoyed the hell out of me), so I decided to get into it in a little more detail.



Back in Business: Jobs Picture Brightens in April
"Job creation accelerated in April, with the U.S. economy adding 165,000 new positions and the unemployment rate edging lower, quelling worries of a spring slowdown.

New figures from the Bureau of Labor Statistics indicated that a light March payrolls report may have been an aberration, as higher taxes and reduced spending due to the fiscal stalemate in Washington failed to deter growth.

The unemployment rate edged lower to 7.5 percent, due partly to the jobs gains and to a labor-force participation rate that remains at a 35-year low. An alternative rate that also counts those who have quit looking or are underemployed rose to 13.9 percent." (CNBC)
FYI- Even if you've stopped looking for work, you're still unemployed...

Apathy is not a profession.

In case you were wondering how Participation Rate (those working or actively looking for a job as a percentage of the total working age population) actually affects employment numbers, check out this chart:


As you can see, Participation Rate is still continuing to decline.
Since the Employment-Population Ratio (percentage of the population employed) is holding fairly steady, the loss in participation rate can be attributed primarily to people dropping out of the workforce because they are no longer looking for jobs.
However, to the Bureau of Labor Statistics, these "drop outs" positively affect Unemployment Rate (that is: unemployment goes down, giving the illusion of an improving job market)

To further illustrate the closer correlation between Unemployment and Participation Rate (rather than working individuals), take a look at this chart (yay graphs!):

(Financial Sense 1/4/2013)

Notice again that the Employment-Population Ratio has remained fairly steady.
Unemployment rate has dropped though. Comparing this to the first graph, which plot does this look like?
Participation Rate, maybe?
Funny how they coincide...

Why don't we use an Employment Rate indicator?

I'm reiterating my suggestion to use a simple Employment Rate (percentage of employed persons out of the total able-bodied workforce). Forget those not looking for jobs, underemployed, or otherwise.

Again, here are all the variables numbers the government uses to define the various levels of Unemployment:
The Bureau of Labor Statistics also calculates six alternate measures of unemployment, U1 through U6, that measure different aspects of unemployment: 
U1: Percentage of labor force unemployed 15 weeks or longer.
U2: Percentage of labor force who lost jobs or completed temporary work.
U3: Official unemployment rate per the ILO definition occurs when people are without jobs and they have actively looked for work within the past four weeks.
U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.
U6: U5 + Part-time workers who want to work full-time, but cannot due to economic reasons (underemployment). (Wikipedia)
Anyway, I suspect the economy may be improving slightly, but I don't think it's going as well as some numbers may indicate..
Many people are "unemployed" and many more truly have no job.

Thoughts? Opinions?

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