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August 07, 2009

Unemplyment, Part II: Rate Goes Down Only Because 300,000 People Exited the Workplace (That Is, Gave Up Looking for Work); "Discouraged Workers" Meme No Longer Operative

Update: I read most of Slublog's post on unemployment and then... um, stopped, and figured, "Oh, my way of writing something new will be to discuss the disappearance of 'discouraged workers' from the labor force!"


Yeah. Slublog already covered that, and better than I did.


First, Geoff's chart:


Good analysis, too:

Seems a little odd, since we actually lost 155,000 jobs in July (and we lost 247,000 jobs on non-farm payrolls). The only way we can lose jobs and still have the unemployment rate go down is if the labor pool goes down even faster. And in fact that’s what it did, dropping by 422,000 workers. But the “Want a Job” category only increased by about 100K, so where did the other 300K workers go?

[See chart at link; I can't steal everything from them. -- ace.]

As you can see from the chart, both the unemployed and “want to work” categories dropped, and we know that the employed dropped as well. Something’s not right here, unless 300,000 people simply gave up entirely and decided to become bloggers or something.

Yes, "discouraged workers." During periods of low unemployment -- like under Clinton's last few years, and the middle/end of Bush's years -- the unemployment figure overstates unemployment, because that figure includes people who normally don't work often or full time but who are enticed back into the labor pool because jobs seem so plentiful. That is, the plenty of jobs encourages people to join the workforce, and thus more people are working, even if the unemployment figure doesn't change much.

In periods of high unemployment, the unemployment figure understates unemployment, because people used to working become some discouraged from finding regular work they stop looking and try to make money in some nonstandard way.

Or give up entirely and move in with their parents. Or their kids.

We heard a lot about "discouraged workers" under Bush, despite the fact that Bush had a fairly low unemployment number for almost the entirety of his term and would thus not expect great numbers of discouraged workers. Actually we might expect more "encouraged semi-workers" to join the labor force than discouraged workers to exit it.

Under Obama, the unemployment rate is very high indeed. There are a lot of discouraged workers the current figure misses entirely, because they've just given up. And yet, when it's actually appropriate to note the extra discouraged workers not included in the figures, we get headlines and ledes like this:

Payrolls fall less in July, jobless rate eases

The U.S. unemployment rate fell in July for the first time in 15 months as employers cut far fewer jobs than expected, providing the clearest sign yet that the economy was turning around.

Not a single word about those "discouraged workers" we heard about every single unemployment report story under Bush. Despite the fact that, plainly, simply doing the math, one quickly can calculate that the unemployment rate only "eased" at all not because more people found work, but because 300,000 fewer people now put themselves in the "expecting to find work" category at all.

In the Age of Obama, there are no discouraged workers. Merely people taking advantage of the cool, stylish, urbane new trend of funemployment.

Oh: The reduction in job losses is a positive sign... sort of. The number of jobs lost is closing in on seven million. There are fewer and fewer jobs to shed in the first place.

Further, there is no guarantee at all that this will be a "V" shaped recession/recovery. In fact, many economist expect it to be "L" shaped, with very little job growth for years.

So it's nice that we're losing fewer jobs... but if, as many expect, those jobs will remain lost into the foreseeable future, it's not really a sign that we're headed into true recovery.

Few would be happy if the current jobless rate continues bouncing around between 9 and 10% for two or three years.

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posted by Ace at 11:53 AM

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