Unemployment On The Way Up ... Or Is It? A Look Behind Unemployment Numbers and What They Mean [160*2]
THE FACE OF THE UNEMPLOYED
THIS TOPIC MIGHT SEEM A BIT FAMILIAR, given I wrote a hub about the Unemployment Rate quite awhile back. I am taking a much less wordy, but more informative approach this time. Further, I won't be anywhere near as political as I recall being last time. It is hot topic again because we are so close to the 2012 election and President Obama got both good and bad news. The good news was job gains far exceeded expectations at 162,000 in July 2012. The bad news is the unemployment rate crept up another notch to 8.3% from 8.2% (actually it was like 8.25% and 8.23% but rounding makes wonderful political fodder, doesn't it, lol).
What this hub is concerned with is the 8.3% number and what goes into as Conservatives are quick to correctly point out, that number doesn't measure total unemployment. Generally they throw out a number like 14% as being the total unemployed, but that isn't correct either, as you will see shortly. The actual answer is somewhere in between.
First, however, let me offer a table of historic unemployment numbers for various periods to give you an understanding how they change and as a reference to use if you care to.
Feb 1977 - 7.6%
Feb 1981 - 7.4%
Mar 1989 - 5.0% (low)
Jan 1993 - 7.3% (high)
Feb 2001 - 4.2% (low)
Feb 2009 - 8.3%
May 1979 - 5.6% (low)
Nov 1981 - 8.1%
Nov 1990 - 6.2%
Jul 1993 - 6.9%
Sep 2001 - 5.0%
May 2009 - 9.4%
Jul 1980 - 7.8% (high)
Mar 1982 - 9.0%
Oct 1991 - 7.0%
Sep 1994 - 5.9%
Dec 2002 - 6.0%
Oct 2009 - 10.0% (high)
Nov 1982 - 10.8% (high)
Jun 1992 - 7.8% (high)
May 1997 - 4.9%
Jun 2003 - 6.3%
Nov 2009 - 9.9%
Jul 1983 - 9.4%
Apr 2000 - 3.8% (low)
Nov 2003 - 5.8%
Oct 2011 - 8.9%
Oct 1983 - 8.8%
Dec 2005 - 4.9%
Apr 2012 - 8.1% (low)
Feb 1984 - 7.8%
Dec 2007 - 5.0%
Jul 2012 - 8.3%
Nov 1986 - 6.9%
Aug 2008 - 6.1%
Nov 1987 - 5.8% (low)
Jan 2009 - 7.9% (high)
WELL DARN! I THOUGHT THIS WAS GOING TO BE A SHORT, SIMPLE HUB; I am talking a simple little, uneffacing unemployment number that everybody understands everything about already, right? As it turns out, that is quite wrong! By the time I finished this Hub, another of my "short stories" had appeared, and a complicated one at that; so I came back to write this preamble to warn you.
The bottom line of what is to follow is that 1) the unemployment rate (UE) is not a simple concept, 2) that looking at just a few changes in UE rates tells you nothing, and 3) if you believe anything you hear from politicians, political pundits or anyone else who doesn't understand the ins-and-outs of the myriad underlying causes for changes in the UE rate, then, as they say, I have some land to sell you here in Florida.
What follows this preamble is, unfortunately, rather convoluted. Some have told me I occasionally have a way of making a complex economic subject understandable; I am afraid I failed miserably here, there is no way to make the UE rate understandable in my opinion ... my head is still hurting. Anyway, what I try to do in the next several sections is identify all the parts that are involved in determining the unemployment rate (you would think you would divide those not working by those available to work, but that isn't it) and then explain how each is involved in the process.
Then I offer four examples, the April - July 2012, of UE changes and look behind them to see what actually took place ... it is not a pretty sight, not at all. What I will show you is that there is no predictable reason behind changes in these factors and the ultimate change in the UE rate, very frustrating to someone like me indeed. You will find:
- In one case, where the UE rate decreases, so does the number of people actually employed (counter-intuitive);
- in two cases where the UE rate increases, employment increases the most of the four months we look at in one case (again, counter-intuitive), and it actually does decrease in the other case.
- In the final case, where the UE rate remains unchanged, employment also increases, while unemployment remains basically flat.
Following this rather lengthy set of sections is the summary. If you like, or aren't equation-inclined, you might review the factors presented in the next sections so that you understand fully what roles each of the factors play in the unemployment picture. Then, if you like puzzles or are a glutton for punishment, you can work your way through the examples. If you are not these things, you can skip to the summary.
THE FIVE FACES OF UNEMPLOYMENT
AS YOU ALL KNOW BY NOW, THE UNEMPLOY,ENT RATE isn't just one number, it is really four, plus one of my own making. They are:
- The Unemployment Rate (U): Those people actively looking for work, but haven't found it
- Discouraged Workers (D): Those people who would like to work but have stopped looking because they feel work is not available
- Marginally Attached Workers (MA): Those people who would like to work but have stopped looking regardless of the reason (it could be going back to school or other non-work related reason)
- Part-time Employed (PT): Those who are part-time employed but would like to be full-time employed.
- My contribution, at least for this hub, are Marginally Unattached Workers (MU): Those workers who want to work but aren't looking for non-job related reasons, such as long-term illness, school or other reason other than being discouraged by the job market.
- Oh yeah, the most important part, the Employed (E).
If you add E, U and MA together, you have the Total Available Workforce. However, this isn't the total workforce, i.e. all those capable of working; there is that percentage of Americans who simply do not want to work but are capable of doing so. These people are not captured in any of the unemployment data.
THE UNEMPLOYMENT RATE (UR), [Measure U-3, Table A-15 BLS] is the most commonly used metric to describe the state of employment in the United States; it is also the most derided by those who 1) don't understand it and 2) hope to make political gain by misrepresenting what it actually means, whether they understand it or not. This is a non-partisan criticism of those who abuse this statistic because each side of the aisle is as guilty as the other in its misuse.
I personally do not agree that the currently defined UR is the best one, but what do I know; besides I don't set the rules anyway. Nevertheless, the UR is close to being the best; I will explain why in a bit. What is not the best is what detractors of the UR call the "real" unemployment rate, the one that captures all of the unemployed; I will explain that as well.
But first, what exactly is the UR? It is the ratio of two sets of numbers. One is the "number of people out of work who are actively looking for work" or U. The other is the sum of the total number of employed persons (E) plus U. So the formula would be UR = U/(E+U). To put this in perspective with current events, let's use real numbers. The July UR was 8.3% (actually 8.253%) up from a June rate of 8.2% (8.217%). So, how did the Bureau of Labor Statistics (BLS) come up with these rates? Using various methods included household surveys, the BLS estimated that for the month of July 2012, there were:
- A total of 142.2 million people actually working (E) and,
- a total of 12.8 million people actively looking for work (U)
- Therefore, applying our formula UR = 12.8/(142.2+12.8) = .08253 or 8.25%.
That is all there is to it, nothing more magical than that. There are, however, many who complain, and I am one of them, that this rate understates actual unemployment; that there is something missing. We look at that next.
THE DISCOURAGED WORKER
THE DISCOURAGED WORKER (DW) [meaure U-4, Table A-15, BLS] is someone who wants to work but has stopped actively looking because they think the situation is so bad, it isn't worth their time to go look, i.e. "job-related" reasons. DW is a subset of another, larger group called Marginally Available (MA) workers, which I will talk about later. For the moment though I just want to focus on DWs.
If I were king-for-a-day, I would add DW to our basic formula of UR = U/(E+U) so that the modified unemployment rate (URm) = (U+DW)/(E+U+DW). In our example, the number of discouraged workers for July 2012 is roughly .9 million, giving a UR modified rate (URm) of 8.8%; about a half of a percent higher than the "official" rate.
I would argue this is the "real" unemployment rate because it captures all of those actively looking for work, or would be actively looking if they thought the job market was better. Others would argue that other unemployed people need to be included as well to show a complete and fair picture; I would disagree, which is discussed next.
MARGINALLY ATTACHED (MA) WORKERS
AGAIN, IF I WERE KING, I would drop the Marginally Attached category [measure U-5, Table A-15, BLS] entirely and substitute one called Marginally Unattached (MU) workers, which is subtlely different. BLS defines Marginally Attached workers as
"Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months."
Discouraged Workers (DW) fall in this category, as well. The difference, as I see it, between DW's and the rest of the MA category is one of motivation for having stopped looking for work. In the former, DW, case, people have stopped because they have lost hope of finding work, but, in the latter case, people stopped looking for other reasons. These reason can be quite varied, from wanting to go back to school, to taking some time off to become full-time stay-at-home moms or dads, taking time off just to get a break from work, and a host of other reasons. A common thread among all of these reasons is each person out of work for this cause is willing to go back to work, if the price is right. It is this group of people whom I think would be more appropriately labeled Marginally Unattached and not counted toward the unemployment rate.
As of July 2012, MU's account for about 1.1 million people or 0.6% of the civilian labor force. Add to that the .9 million Discouraged workers and you get a total Marginally Attached unemployed of 2.0 million Americans (1.1% of the labor force). Most often when those who say the official rate doesn't capture everybody, It is this U+MA rate that they are referring to; 9.4% in the case of July 2012.
The problem is you frequently hear a much higher rate, such as 12% or 14%, mentioned in conjunction with their complaint. So why the discrepcency? That is next.
WHY NOT USE MARGINALLY UNATTACHED WORKERS IN UNEMPLOYMENT CALCULATIONS?
MY REASONING IS SIMPLE, MU folks choose to be in an inactive unemployed status even though they might be willing to work if offered enough incentive. The MUs counterpart, Discouraged Workers, aren't actively looking because they simply don't think they can find a job; their mind set is different. they would take a job, any job, if offered one.
So, why should someone who is not particularly interested in working be counted with the same weight as those who are interested in finding a job. In my view, they should be given the same weight, in fact, they shouldn't be given any weight at all.
UNDEREMPLOYED AND/OR PART-TIME WORKERS
THIS IS THE LAST, BUT NOT FINAL, of the faces of unemployment, the not "not fully-employed" [measure U-6, Table A-15, BLS]. These are people who work, but whether or not by choice, they don't work "full-time", which is generally more than 35 hours per week. It is this measure of unemployment, 15% for July 2012, whose number you frequently seen given when people are talking about the official rate of under-reporting the employment problem when, in fact, part-time workers are actually part of the original calculation.
Of course 15%, right or wrong, is a much more dramatic number to throw out there than the actual rate 9.4% of true total unemployment (or the 8.8% I think is more appropriate); neither of which is that much more than the official rate of 8.3%; so, people who want to make a false point, drop their ethics, and use the more wrong, more impressive number.
Now, if you actually want to talk about part-time employment, then measure U6 is just right for you. The BLS receives estimates of how many full-time and part-time employees are in the employed workforce and modify their unemployment formulat to U6 = (PT+U+MA)/(E+U+MA).
A great deal today is made of "underemployment", those people working part-time who want to be working full-time. The problem with using the U6 measure is that it includes total part-time, not just the underemployed. To better measure Underemployment, one must figure out what the baseline of normal part-time workers are. The table below might give you an idea:
PART-TIME AS A % OF TOTAL EMPLOYMENT
JAN 1994 (first time measured)
DEC 2000 (low)P
OCT 2010 (high)
It would look like 2.7% would be a safe number to pick as a "normal" amount of people who want to be employed part-time, although I suspect the actual number is a little larger. But, given December 2000 was as close to a full-employment period as America has experienced for a long time, I will go with 2.7%.
Assuming this to be true, then the next assumption must deal with the "normal" level of people who are in part-time jobs but who really want full-time employment. The number we have for 1994 is the first record of this metric that BLS has maintained, but fortunately it gives us a good idea of what we are looking for anyway. That is because 1994 was when the economy leveled out from the Reagan-Bush recession a few years earlier and therefore might be a good surogate for a "normal" level of underemployment; in this case roughly 0.5% (the difference between 3.4% and 2.7% where we will assume there is no underemployment). Combine these two "normal" levels of part-time workers and you get a minimum rate of 3.2% for part-time workers, made up of both regular and underemployment kinds,
OK, what has all of this boring, mind-numbing verbage brought us to? Hopefully an understanding of two important points - 1) even if you account for part-time workers that will happen regardless of economic conditions, we are left with a maximum, but still not insubstantial rate of 2.1% of underemployment in July 2012 and 2) you must discount that rate of underemployment and part-time employment which will occur regardless of economic conditions, 3.2% by my assumptions and calculations, in order to do any valid comparisons.
THE CIVILIAN NON-INSTITUTIONAL POPULATION (CNIP)
ALRIGHTY NOW, THIS IS THE FINAL PIECE of the puzzle, most often overlooked when thinking about all of these rather confusing numbers; and it is probably the most important one, the way I see it, if your are to make sense of the competing views of unemployment. Why is that you ask, without knowing yet what the CNIP actually is? Because each of the measures of unemployment, U3 - the official unemployment rate; U4 - U3 plus Discouraged workers; U5 - U3 plus Marginally Attached workers; or U6 - U5 plus Part-time employees, looks at different pieces of the whole and when you add the relavent pieces of what we have talked about so far, the employed, the unemployed, and the marginally attached, one gets the idea you may be talking about everybody that can work. But you would be wrong; wrong by more than a third.
The CNIP is the estimated total of everybody in America over the age of 16 capable of working that isn't in jail or a hospital of some sort. The Civilian Workforce is just a subset of CNIP, a large one for sure, 63.7% today, but still a subset. One must keep firmly in mind that when discussion employment and unemployment, 36% of Americans, some 88 million people, are left completely out of the discussion; as well they should be. But you need to know who these people are because many of them are often confused with people who political combatants often assume should or should not be part of the equation.
These non-marginally unattached people (NMU), as I will call them, consist mainly of the following: 1) housewifes and househusbands who choose to use their labor maintaing the household and family rather than participate in the workforce, 2) highschool, vocational, and college students over the age of 16, 3) those who have chosen to provide unpaid services to their religions, social programs, or other alturistic ventures, 4) the small percentage of those who would want to work in the labor market but cannot for economic or health reasons for periods longer than 12 months, and 5) the tiny percentage who simply want to freeload.
Many in the unemployment debate feel a lot of these people should be counted in the unemployment numbers, but they are not and should not be because each of these people have either chosen not to participate in the job market or cannot through no fault of their own.
THE ZERO-SUM GAME FOR JULY 2012
THE REASON I FEEL it is to the rational person's advantage to know all of this is because employment/unemployment is actually what is called a "zero-sum game" which means if you take 'x' away from here, you have to add 'x' to there; the end result, the sum of all changes must be zero; in other words, the total doesn't change. In order to work with this concept therefore, you have to know what the heck the total is, and that is CNIP in our case; 243.354 million souls, that is our "bottom line".
Knowing this, and all of that other riduculous stuff I gave you a headache with, you now know that:
- CNIP = Total Civilian Worforce (TCW) + Total Not in Civilian Workforce (TNCW)
- TWC = Total Employed (E) + Total Unemployed (U)
- TNCW = Marginally Attached (MA) + Non-marginally Unattached (NMU)
- MA = Discourage workers (DW) + Marginally Unattached (MU)
- and Finally, the "zero-sum" equation: CNIP = E + U + DW + MU+ NMU
OMG, what does all of that mess mean??? There are several things to understand about equation 5:
- For the purposes of part of our analysis, CNIP is constant; it doesn't change in the short-term.
- As a consequence, I am ignoring, for the moment, the monthly increase in CNIP, it complicates the explanation terribly but doesn't really effect the results.
- The purpose of the formula is to show, that because CNIP is constant in the short-term, and here is the critical part, and there are still five unknowns (MU, NMU, E, U, and DW) then:
- -- If E goes up, you don't have a real clue as to what happened to MU, NMU, U or DW without studying the numbers closely.
- -- As a consequence (and back to the title of this hub). if the unemployment rate goes up from one period to the next, you don't have a clue as to why, without studying the underlying numbers. (of course that doesn't stop you from making political hay with the fact that it did).
So, let's study the underlying numbers (you can skip to the conclusion if you want). First, let me show you what really happened, and then I will show you a couple of alternative scenarios with more dramatic outcomes; I will also recomplicate things by throwing in the estimated month-to-month growth. In July 2012:
- CNIP = 243 million, an increase of 199 thousand over June 2012
- Of the 199 thosand, some went straight to MU or NMU status, some went immediately to the DW status, and the rest tried or did find work.
- At the same time, you had people moving between the E, U, DW, MU, and NMU statuses, but you don't know the specifics, only the outcome.
- The outcome is this, roughly 36.3% (from BLS Table A-1) of CNIP, 88 million, are spread between DW, MU, and NMU. This is an increase of 348 thousand, some 149 thousand more than the overall increase in CNIP, darn!
- Looking back in Table A-1 to the full-employment year of 2000, we see that TNCW is 32.9%. But, instead of being made of DW, MU, and NMU, because it is full-employment, the DW, discouraged worker, factor drops out.
- That means, based on this, DW would be equal to 36.3% - 32.9% or 3.4%.
- However, through more direct measurement in Table A-15, we have already found that DW is 0.5%, implying that the MU, NMU factors increased from 32.9% in 2000 to 35.8% in 2012.
- Based on this 35.8% rate, we can estimate that of the 199 thousand person increase in CNIP, 71 thousand went directly into MU or NMU status.
SO, WHAT DROVE THE UE RATE FROM 8.23% to 8.25% IN JULY 2012?
FROM A PURELY MATHEMATICAL point of view, it was because E for June was 142.415 million and U was 12.724 million and when you do the math, that equals 8.22%. Similarly, for July, E = 142.220 and U = 12.794; that equals 8.35% for an unemployment rate. But, what else happened because simply looking at it this way doesn't even come close to telling the right story?
First, it is easy to see that Employment (E) fell 195 thousand during July, after having risen 550 thousand the previous two months. Also Unemployment (U) rose in July 45 thousand, after having risen 249 thousand the previous two months as well. But many other things happened also, which is why I spent so much time boring you to death in the previous sections with eye-watering numbers.
- In July, here is what changed:
- a) an estimated 199 thousand new people became capable of working.
- b) 306 thousand joined the ranks of the NMU group - not interested in participating in the job market
- c) 107 thousand more workers became discouraged (DW)
- d) 45 thousand more became Unemployed (U)
- e) 195 thousand stopped working (E)
- f) 65 thousand left the ranks of the Marginally Unattached (MU)
Given the above and some simplifying assumptions regarding movements of people between groups, we can more or less trace where everybody went to get the real picture, a picture that is somewhat worse than the slight rise in unemployment might otherwise indicate:
- Because the 199 thousand newly indoctrinated CNIPers can't actually become employed, I will put them in the Non-marginally Unattached (NMU) group, since their gain is large enough to absorb them all.
- Assume also the 195,000 who lost their jobs are split out as follows:
- -- 45 thousand go to U to fill that increase,
- -- that 107 thousand of the remaining 150 thousand went to the DW category,
- -- while the final 43 thousand formerly employed people moved over to the permanently doing other things (NMU) group.
- From the MU category, 65 thousand moved over to doing other things on a more permanent basis group (NMU)
Ohhhh, what a mess that all is! But, Conservatives rejoice and Progressives, you can cry .... for a moment anyway. Why? because the thing all of that movement of people tells us is that while there might have only been a small overall movement in unemployment, there was apparently a major increase in an expectation of long-term unemployment as expressed with the large increase in Disgruntled Workers (DW) and Non-marginally Unattached (NMU). Fortunately one of the categories is DWs, who are people willing to go back to work when they feel the job market is looking up again; the NMUs are more attached to their status and give it up less easily.
BUT, that isn't the end of the story. What about that decrease back in April from 8.2% down to 8.1%? Believe it or not, you ALMOST get the same story; that is what makes understanding, letting alone using these changes in unemployment rates in a sensible fashion in the short-term so dang hard!
SO, WHAT DROVE THE UE RATE FROM 8.19% to 8.10% IN APRIL 2012?
LET'S GO THROUGH THE SAME ROUTINE as we did with the July results, but, instead on results that made liberals happy and conservatives sad, falling unemployment rates.
- In April, this is what changed:
- a) an estimated 180 thousand new people became capable of working.
- b) 381 thousand joined the ranks of the NMU group - not interested in participating in the job market
- c) 157 thousand more workers became discouraged (DW)
- d) 173 thousand LESS workers were counted as Unemployed (U)
- e) 169 thousand stopped working (E)
- f) 15 thousand left the ranks of the Marginally Unattached (MU)
The startling difference between April and May, obviously is what happened in the estimated unemployment (U) count; a shift of 218,000 people. The question, of course, is why such a big change? Well, let's see where everybody went.
- Let us start with the 180 thousand that became eligable to work; where to put them? The only possible groups are the Non-marginally Unattached and Disgruntled Workers (DW), they only two groups that grew. I will put them in the NMU group.
- The next big group to find a home for are the 169 thousand formerly employed. In reality, most of these actually went to the unemployed ranks here, but the net effect, since U decreased in total, is that all of these Es moved to NMU or DWs as well. I will add them to the NMU group along with with the new CNIPers.
- I will move the 15,000 MUs there as well.
- That leaves the 173,000 decrease in unemployment (U). We can put 17,000 in NMU to complete filling up the 381,000 increase this group saw. The remaining 156,000 will go into the DW group to complete the redistribution.
Now, what is the difference between this scenario where the unemployment rate went down, and the last one, where it went up? Only the number of people counted in the ranks of the unemployed; all the other categories changed in the same direction in each case and by roughly the same order of magnitude. In the case where the UE rate went down, U dropped a great deal, in the case where the UE rate went up, U increased only a little.
What caused this large drop in the unemployed category is unknown with the data I have. (The actual dynamics, rather than the net effects I offered above, is that most of the 169,000 who stopped working actually joined the unemployed ranks, while 342,000 former workers departed the ranks of the unemployed and joined other groups, mostly disgruntled workers, I suspect.)
Nevertheless, the net effect of the movements of people in both of these scenarios, where the UE rate went up and when it went down, are both depressingly bad; still, that is not all, there is a rosy picture as well.
SO, WHAT DROVE THE UE RATE FROM 8.10% to 8.21% IN MAY 2012?
WHAT GOES DOWN, MUST COME UP. In the last two examples, we looked at where basically the same changes in the distribution of the CNIP population led to conflicting results, in April, the UE rate dropped 0.1% and in July, it increased 0.1%. Now it is time to confuse even further, and drive home my point about how this poor, hapless UE rate is being misused by politicians, political pundits, and the other statistically challenged.
Here, we have the UE rate increasing 0.1% again from April to May 2012; something the Conservatives ballyhooed about, but shouldn't have if they had known what really had happened. The same can be said of the Democrats the month before. What is disgusting about the whole thing is neither side particularly cares what the truth is, they just want to take meaningless numbers and tell meaningful lies with them.
Anyway, looking at the same demographics as we have before, we see an entirely new picture:
- In May, this is what changed:
- a) an estimated 182 thousand new people became capable of working.
- b) 275 thousand LEFT the ranks of the NMU group - not interested in participating in the job market
- c) 180 thousand FEWER workers became discouraged (DW)
- d) 220 thousand MORE workers were counted as Unemployed (U)
- e) 422 thousand STARTED working (E)!
- f) 6 thousand left the ranks of the Marginally Unattached (MU)
This was a complete and utter reversal of April and yet the UE rate increased! The dynamics here are fairly straightforward, so I will forgo hypothesizing the movement of folks between groups. In this case it is easy to see that:
- 422,000 people joined the ranks of the working, primarily from the unemployed and new CNIP with a smattering from the disgruntled group.
- A large number of the new CNIP and disgruntled workers also began actively looking for work. thereby swelling the ranks of the unemployed; this probably has something to do with kids getting out of college (NMU) as well.
- If you look at the percentage increase in E and U, even eye-balling it, you can tell unemployment increased at a faster rate than the employment rate did, and in this case, both increases were great news even though it results in an increase in the unemployment rate.
- Consequently, the UE rate going up was a good thing although to hear the politicians and political pundits talk about it, the sky was falling.
If one were to do the same analysis for the next month, June, where the unemployment rate remained unchanged, you would see a similar dynamic going on, increased employment along with increased unemployment; just not as pronounced.
WHAT HAVE I PROVED?
- In March 2012 (not covered), UE went down (good), yet employment went down (bad) and unemployment went down (good)
- In April 2012, UE went down (good), yet employment with down (bad) and unemployment went down (good)
- In May 2012, UE went up (bad), yet employment went up a lot (very good) and unemployment went up a lot (very bad)
- In June 2012, UE stayed the same, yet employment went up (good) and unemployment went up a little (not bad)
- In July 2012, UE went up (bad), and employment went down (bad) and unemployment went up a little (not bad)
So, knowing this and seeing that there is a change in the unemployment rate from one month to the next, what can you say about the underlying cause? Nothing, not a darn thing!
OK, WHAT I HAVE PROVED IS that if you believe anything either side has to say about a single, or just a few, unemployment rates, you would be a damn fool to do so. What I hope I have shown is there is nothing rational behind any given change in UE number. And, because you cannot say for certain why a certain UE rate went up and another went down, you can't say anything certain about the change in rate itself.
You can't, for example, say President Obama is the worst president every because the unemployment rate went up in July (which the Conservatives have done), nor can you say he is the greatest thing since sliced bread because it went down in April (which the liberals have done); millions upon millions of dollars were wasted in political advertising talking about absolute nothing and being misleading about it to boot. Bottom line ... you can't say a thing intelligent one, two, or three unemployment rate numbers, you can only say stupid things and show how uninformed you really are. (you wouldn't think I am annoyed by this, would you; especially at myself when I forget and become guilty of the same stupid statements myself once in awhile.)
WHAT CAN YOU USE THE UNEMPLOYMENT RATE FOR
AS I HAVE SHOWN YOU, NOTHING FOR THE SHORT-TERM, but several things over the long-term, when combined with other information and not taken as a standalone set of numbers. What is "long-term"? At least, four months, better yet, six months may start to establish a pattern.
Take the 6-month period Oct 2009 to Apr 2010, UE fell from 10% to ... 9.9%, not much of an improvement at all, but, what does it tell us? Not very much.
- Let's add another bit of information, the UE rate from Apr 2009 to Sep 2009, it rose from 8.9% to 9.8%; ok, we have a year. Now we can say UE was increasing at a rate of 0.15% per month until Oct and then stabilized for the next six months. That implies something may have changed in the economy, but, still we can't really draw many conclusions that mean anything substantive.
- OK, now extend the time periods some more and start at Oct 2008 and go to Oct 2009, and then Oct 2009 to Oct 2010, a 2-year time frame. We see that UE first rose at a rate of 0.29% per month from 6.5% to 9.8% and then declined from 10% to 9.5%, or a tiny 0.04% a month. Now we have some information to work with.
- -- I first notice that the rate of increase in UE from 10/2008 to 10/2009 is almost twice that of the last half of that period from 4/2009 to 10/2009. Following this the UE rate peaks and levels out for the next 12-months.
- -- This tells me that that the rapid job loss (.37% per month) was at the beginning of that period (10/2008 - 3/2009) and that recovery began in April 2009, shortly after the Obama stimulus plan started being implemented and TARP was well under way.
- -- Why do I pin the recovery on the Obama stimulus and the Bush TARP? Well, I need more information for that, but fortunately it is easy, because there is a lack of it; meaning there was nothing else going on in the economy to account for the recovery; only the stimulus and TARP were working to help the economy. But, there were other signs of improvement
- -- The stock market bottomed-out in March 2009 as did the decline in GDP growth.
- -- In fact, just the opposite was going on. The Conservatives had mounted an impressive media campaign denouncing Obama's efforts as a failure, even before they really got started and therefore created a negative psychological effect in both the business community and the public at large that recovery wouldn't happen.
- -- Notice, to understand this, I needed two full years of unemployment rate information plus some additional, not just one monthly change.
If I expanded my scope further, I could determining even more about how this particular decline and recovery in UE compared to others, but then I would also have to know the circumstances regarding each decline. Likewise, the recovery can be examined in this way as well, and when you do, the very slow nature of this recovery jumps out at you, when compared to many other recessions and depressions, especially when the turn-around was so rapid, much more so than downturns of the this magnitude when you thumb through the recessions and depressions of say, the last 200 years.
To figure out why this recovery is out of the norm then would require a study of the political and economic environment surrounding the recovery to discern the reasons, something outside the scope of this Hub.
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