http://economix.blogs.nytimes.com/2014/01/15/the-wrong-guidepost-on-unemployment/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Business%20Day&action=Click&pgtype=Blogs®ion=Body
In Class, we talked about how unemployment is the number of unemployed (not employed but actively looking for a job) divided by the labor force (the amount of labor available, all employed and unemployed).
In this article, it argues that although the unemployment rate seems to have dropped significantly (currently at 6.7%), it is mainly due to the decline in the labor force and not necessarily people actually finding jobs. As millions of potential workers drop out of the labor force (stop looking for work) due to weak demand in the labor market, these people are no longer counted as unemployed. The article shows that the current unemployment rate if adjusted for declining labor force, is actually 10.2% if counting all of the missing workers and 9% if counting some of the missing workers.
The article states that using 6.7% as the unemployment rate to determine whether to extend long-term unemployment benefits is an unrealistic number and a misleading approach.
The reason that the current administration will tout the unemployment at 6.7% is because is helps keep the current party in control. People would be much less likely to vote for them if the adjusted unemployment at 10.2% was used.
ReplyDeleteIt is inaccurate to assume that the actual unemployment is 10.2% by just assuming that those who left the labor force are people who are unable to find jobs. Another demographic that we need to keep in mind is the aging population who are reaching retirement. This is a demographic that is rapidly increasing in many developed countries, including the US. When more of these people go into retirement, the labor force participation rate may decrease in the future if we are unable to replace them. That doesn't portray a situation where the economy is so bad that people can't find jobs. That portrays a situation in which we cannot replace the older workforce at a more appropiate rate to keep the labor force participation rate a healthy level. In 2009, there were 39.6 million people who were 65 years old or older. In 2030, that will be 72.1 million people (according to aoa.gov).
DeleteHowever this could end up hurting current administration in the long run. If the American people learn that there government is giving them false information it could lead to a drop in approval ratings due to the fact that people believe they can't trust the government.
ReplyDeleteI think as times change we have to readjust the way we define certain terms. It may seem like this new adjusted unemployment rate of 10.2% is high, but could it be a new trend. There are many reasons to explain a high unemployment rate. Low employment to population ratio, a high cyclical vacancy rate, and increased average weeks a person has been unemployed are possible contributors. Therefore, reevaluating how the unemployment rate is calculated is critical. It is important to see where the BLS gets its numbers. With this, the government can make policies with all of the facts.
ReplyDeleteMonth to month changes in the "unemployment rate" are extremely difficult to calculate in practice. It is best to take a longer view and stance comparing a few months at a time or annually.
ReplyDelete