Tuesday, April 8, 2008

Back to work

I've long contended, to anyone who will listen, that the unemployment rate seriously mischaracterizes the extent to which the labor market ill serves the needs of the nation. In particular, those people who contend that the lower unemployment rate of the United States as compared to Europe proves the superiority of our dog-eat-dog economy to the "welfare state" are citing, I believe, incomparable statistics.

I have read, though I admit to not being able to find a citation, that in the last few years, the unemployment rate as reported was considerably lower in the U.S. than in Europe, but the employment rate was about the same (at least in some countries of Europe).

My theory is that the U.S. systemically undercounts the unemployed, because the rate tends to miss those people who no longer collect unemployment insurance. Also, for cultural reasons, if an American is contacted for an employment survey, there is a tendency to say "self-employed" or "consultant." On the other hand, in Europe the government (for better or worse) is far more involved in the daily lives of its citizens, thus has a better chance of counting the unemployed more accurately.

I haven't said anything yet about the underemployed; there are two possible types, those who want to work more hours, and the people who are working in jobs well beneath their abilities. These numbers are harder to capture, and I can't think of a reason that the populations of the U.S. and Europe would be considerably different. However, we shouldn't forget these people when we talk about the health of the labor market.

Paul Krugman of the New York Times has a post showing the U6 unemployment rate, a measure that attempts to determine "labor underutilization." The graph is fascinating; it shows the unemployment rate getting worse for more than the past year, and the current rate about 9%. This metric feels a little more consistent with the European figures we see, at least to me.

On the other hand, take Larry Kudlow...please. He has written about the good side of recessions: "Recessions are therapeutic. They cleanse excess from the economy." Since he's willing to concede our present recession exists on the basis of the jobs-loss report, one can only assume he considers the employed to be part of that excess. Oddly enough, it is easy to find a somewhat more moderately-toned post by Kudlow - one wonders about the differences (and I won't get into his main solution, the cutting of corporate taxes, today - I don't believe that it would have the wondrous effects he predicts).

At any rate, it seems we should take all these numbers with a very large chunk of NaCl. They're all pretty fluid until well past the time they're actionable, and can be used to support almost any economic theory. I think it's pretty obvious that there are a lot of people hurting, and the call for greater numbers of H-1B visas and liberal offshoring isn't likely to help. Of course, those calling for those policies aren't too concerned about that lot of people, are they?

1 comment:

Citizen Carrie said...

Thanks for this post, Androcass. These glowing employment reports we're been receiving for the last several years never seemed to make sense for me. I've never really looked into the issue too much myself, except for when I just happened to stumble on an article somewhere. I think I had a basic grasp of the issues of the underemployed and the discouraged worforce, but I never felt I found the definitive article that explained everything in great detail.

I've never understood the Labor Department's "U6" numbers before reading Krugman's link, and I agree it seems to give a much more accurate picture of the job market. Things are making more sense to me now.

If you haven't run across this website before, you might find it interesting.


It shows official government statistics plus various other government-reported data that is left off of the official numbers. It also shows how the numbers would look if they were reported in a past era before the government started cooking the stats in various ways to make our economy look better than what it actually is.

I think it's despicable how major policies are formed while using flawed, misleading and manipulated reports and statistics as the main selling point. For example, letting in foreign guest workers because we supposedly had these historically low rates of unemployment.

Clicky Web Analytics