How Meaningless is the Unemployment Rate?
The unemployment rate appears to be less meaningful every month as workers increasingly drop out of the labor force after giving up seeking employment. Distinguishing between them and the people genuinely not wanting work has become even more important for statisticians now that the Fed is using it as an explicit consideration for monetary policy.
The distinction is important because it would help economists understand whether the job market is on its way to a healthy recovery, or whether the current unemployment rate of 6.7 percent vastly underestimates how many Americans actually need a job.
The labor force participation rate fell about 1 percentage point between 2000 and 2007, from about 67 percent to 66 percent, before dropping an additional 3 percentage points-from about 66 percent in 2007 to about 63 percent today.That big drop came during a time of incredible economic turmoil, and one problem economists face when parsing through the statistics is that people lead complicated lives that may not easily fit into a box on a chart.
Although I'm sure the Fed is taking this into account when trying to reach the 6.5% unemployment target, I can't help but think that the multi-factor approach that they're currently using combined with serious flaws in the measurement of those factors gives them justification for any arbitrary policy.
Any thoughts? Is a jobless recovery here to stay?
Hard to pinpoint whether or not these dropouts are from actual dropouts or from baby boomers just deciding to retire instead of keep looking. If actual dropouts then it is bad news, if boomers retiring then it is probably a natural contraction of labor force as the largest pool of workers leaves.
My question - will the"aging population" eventually lead to more job openings? If so, how long will this take; 5 yrs, 10 yrs, impossible to say..?
That depends on whether or not those jobs are replaced, outsourced, automated, or eliminated. Too early to tell at this point which jobs will survive.
You do realize that the fed already knows about the flaws in how unemployment is measured? That is the whole point of the article you posted...
Yes, I was referring more specifically to aiming for 6.5% unemployment, with the 6.5 being very approximate in terms of reaching the goal better overall employment. Edited. While adding caveats to their targeting rules might be better in terms of timing with the economy, it also just adds a lot of uncertainty to the market.
first you complain that the fed is stupid for targeting a specific unemployment level, then you learn the fed isnt doing that so you decide they're being stupid for NOT targeting a specific unemployment level because it adds uncertainty.
What uncertainty are you even talking about? volatility has been very low.
Private employers have added 8.9 million jobs over the last 4 years. I wouldn't consider that a jobless recovery.
I hope you realize the US population grew by about that much in the last 4 years. So the number of people without jobs is the same.
Population growth does not equal labor force growth. The fastest growing demographic in the US is people aged 65 and older (40 million in 2010 and projected to be 54 million in 2020), and many are retiring and will continue to do so. There are about 2.5 million more retires today than there were pre recession.
The unemployment rate has dropped from 10% to 6.7% because the economy has recovered and a higher percentage of the labor force is now working. Yes, some of the drop was driven by people giving up looking for work, but that is far from the main factor.
I don't think one should be so overtly polarized to say this has been a "jobless" recovery, and for better or for worse the unemployment rate is and will remain for the time being the "all things equal" bellwether for the labor market and the best source of comparison against historical metrics. I think the argument can be made that at this point the unemployment rate may have a more critical effect on large scale economic sentiment even if the underlying numbers are skewed.
While this may slightly stray from the original question, I look back at the presentation by Larry Summers at the IMF Economic Forum this past November in an analysis of the state of the job market, and its relationship with short term regulated interest rates. The biggest question he poses is the inability to reach full-employment when short rates are at zero (yielding a negative implied rate necessary to generate excess demand due to his secular stagnation), and how to we evaluate what we consider "normal" within the developed job market. Certainly his analysis is purely academic and theoretical, but I think it is certainly a captivating analysis of the relationship of the job market and economic demand in this unprecedented ultra-low interest rate environment.
Look up U6 unemployment. And for your information, U6 has dropped from 17% to 12.5%.
In 2004-5, U6 was 10%. At the absolute peak, U6 was 8.5%. Unemployment is fine.
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