Saturday, October 8, 2011

The Real Unemployment Rate

A often see the claim that the unemployment rate is misleading for a few reasons. First, it doesn't count people as unemployed if they are discouraged and quit looking for a job. Second, it doesn't count those that are just entering the work force but are unable to find employment as unemployed. If you graduate from high school and are just living with your parents unable to find work I don't think you are regarded as unemployed.

For that reason it may be better to consider the Employee Population ratio. You can get the data from the Bureau of Labor Statistics here. I'm contrasting that with the unemployment rate, which is available here.

These generally should be expected to move in opposite directions, as they usually do. The decline in the ratio leveled off in mid 2009 and is mostly flat since then. Possibly a slightly further decline. The unemployment rate has just slightly declined as well since then. So these are now moving in the same direction, which is unexpected if the unemployment rate accurately reflects real unemployment (and by real I mean the actual number of people that really would like to be able to work but can't find work).

Here's another point to consider. When you have a large collapse in stock market values you expect that more of the elderly put off retirement and continue to work. Under those conditions just to keep unemployment rates level the employee/population ratio should rise. It's not rising. Yet more elderly are continuing to work. This means that the economy is not creating the number of jobs needed to employee the young people entering the work force. And yet we don't see the unemployment rate rising.

That says to me that the grim realities are being masked. Unemployment is worse than what the official rate indicates.

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