Wednesday, March 5, 2008

Illusion of unemployment rates

Edward Lazear, chairman of the Council of Economic Advisors of President Bush, claims that despite all talk of a recession, the American unempolyment figures are at a historic low, even lower than the average for the past three decades. But as David Leonhardt points out, this claim may be a statistical illusion.

While it is true that the average unemployment rate this decade, just above 5 percent, has been lower than in any decade since the 1960s, 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. Even prime-age women, who flooded into the work force in the 1970s and 1980s, aren’t working at quite the same rate they were when this decade began. About 27 percent of them don’t hold a job today, up from 25 percent in early 2000.

He claims that this confusing picture of falling employment and unemployment rates has two explanations. First, a number of people are not working by choice - self-employed, retirees, stay-at-home parents etc. Second, "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". (they would like to work at the "right price") Given that the official US government definition of an unemployed is those who “do not have a job, have actively looked for work in the prior four weeks, and are currently available for work", the second explanation appears more convincing.

He describes these nonemployed as "those who have been left behind by the economic changes of the last generation. Their jobs have been replaced by technology or have gone overseas, and they can no longer find work that pays as well".

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