The Misleading Jobless Rate

We have NFP for February getting released Friday, and in light of that, I want to direct your attention to David Leonhardt’s very interesting article in today’s NYT. He covers a subject we have discussed around here ad nauseum: The Misleading Jobless Rate.

Over the years, TBP has looked at the Augmented unemployment rate, as well as the NILF issue (Not In Labor Force).

Here’s the money quote:

Over the last few decades, there has been an enormous increase in
the number of people who fall into the no man’s land of the labor
market that Carroll Wright created 130 years ago. These people are not
employed, but they also don’t fit the government’s definition of the
unemployed — those who “do not have a job, have actively looked for
work in the prior four weeks, and are currently available for work.”

Consider this: the average unemployment rate in this decade, just
above 5 percent, has been lower than in any decade since the 1960s. Yet
the percentage of prime-age men (those 25 to 54 years old) who are not
working has been higher than in any decade
since World War II
. In January, almost 13 percent of prime-age men did
not hold a job, up from 11 percent in 1998, 11 percent in 1988, 9
percent in 1978 and just 6 percent in 1968. (emphasis added)

How are these seemingly inopposite data sets co-existing? Leonhardt

There are only two possible explanations for this bizarre
combination of a falling employment rate and a falling unemployment
rate. The first is that there has been a big increase in the number of
people not working purely by their own choice. You can think of them as
the self-unemployed. They include retirees, as well as stay-at-home
parents, people caring for aging parents and others doing unpaid work.

If growth in this group were the reason for the confusing
statistics, we wouldn’t need to worry. It would be perfectly fair to
say that unemployment was historically low.

The second possible explanation — a jump in the number of people who
aren’t working, who aren’t actively looking but who would, in fact,
like to find a good job — is less comforting. It also appears to be the
more accurate explanation.

Unemployed, and Skewing the Picture
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NYT, March 5, 2008

Category: Data Analysis, Economy, Employment, Psychology

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