Hype and Unemployment

The unemployment numbers for January have been released by the Bureau of Labor Statistics, and headlines are already percolating to trumpet the unemployment rate falling to 9.0% from 9.4%.  Yay!  We finally have lower unemployment than Egypt!

Picking apart unemployment statistics is a necessary, but unhappy, task.  I’ve always been one of those who advocate using the U-6 unemployment number, which includes people who have given up looking for a job altogether and left the workforce (although even then, the number is cooked a bit to discount those who are, in essence, “permanently” unemployed.)  Austan Goolsbee, President Obama’s chief economist, has also consistently advanced this belief.  Instead, we always hear about the much lower U-3 number, which airbrushes the long-term unemployed out of the picture, making unemployment look much less worse than it really is.

Three basic factors combine to make up the U-3 unemployment statistic: people getting hired, people getting fired, and people leaving the workforce entirely.  The latter, which is the most melancholy color in the unemployment palette, actually makes the U-3 number look better, because those people just don’t count any more.  We are, however, spending billions of tax dollars providing them with unemployment benefits.  What possible sense could it make to ignore them, except for propaganda purposes?

Thus, we are told to be excited about an unemployment rate that has become “unexpectedly” lower for once (it was forecast to rise to 9.5% for January).  However, the number of jobs created is also “unexpectedly” low at 36,000.  Meanwhile, the percentage of people unemployed for 15 weeks and over has increased, from 59.4% of the unemployed in December to 59.9% in January.  The average duration of unemployment is now 36.9 weeks, up from 34.2 weeks in December… and from 30.5 weeks only one year ago. 

New job losses were down from 8.9 million to 8.5 million.  There is no way to account for the overall reduction of the unemployment rate by combining this modest decline in jobs lost, with the anemic number of jobs created.  Therefore, the only reason overall unemployment is down to 9.0% is that the workforce is contracting.  Overall participation in the labor force has declined to 64.2% of working-age Americans… the lowest level in almost 30 years.

Job gains exceeded losses for the first time since December 2007 last month, which is good news.  We’re still not creating enough jobs to keep up with population growth, never mind reconstitute the workforce to its pre-recession 2007 levels.  Economic growth is affected by popular perception, but manufacturing a number to make people feel better is not the answer to our problems.