Saturday, May 09, 2009
Unemployment Rates
We haven't talked about the unemployment rate yet. Not sure why. Given that it is currently "in the news", let me take this opportunity to discuss it briefly.
The unemployment rate is simply a fraction. The denominator contains the number of people in the labor force (i.e., those employed + those actively seeking work), and the numerator contains the number of labor force participants not employed (click here for all the details on this calculation). (Self test, what might the leisure- consumption graph we used when discussing individual labor supply look like for an unemployed person? At the wage this person expects to earn, they are willing to sacrifice leisure and gain consumption, but they currently are not working.)
Currently, the unemployment rate for the US is 8.9%. This is the highest it has been during your lifetime and is approaching the highest in the post-war period (for some males it has already reached these levels ). The unemployment rate is substantially higher here in Oregon. The last reported number was 12.1% (for March).
As dismal as these numbers are, there is growing debate about whether or not this is the measure of labor market health policymakers should care about. There are two groups of people that the standard measure of unemployment doesn't capture adequately. First, there are marginally attached or discouraged workers. These are workers who are actually willing to work at the wages offered, but who have given up trying to find work. As such, they are not in the labor force (and thus excluded from the standard measure). Second, some people are involuntary part-time workers. That is, they would like to work full time, but can only find part time work. (Note -- in both of these cases, individuals are not reaching the simple utility maximizing point derived from the simple labor supply model we discussed. Again, self test yourself on what the graphs for these individuals might look like. Are they reaching their ultility maximizing points? If not, why should we care?)
The data to account for these different groups are available (and are reported with increasing frequency). Including marginally attached workers in the denominator and excluding the involuntarily part-time from the numerator, the unemployment rate nearly doubles to 15.8% nationwide. As this discussion illustrates, the involuntarily part-time account for most of the difference (here's another discussion of this issue).
The unemployment rate is simply a fraction. The denominator contains the number of people in the labor force (i.e., those employed + those actively seeking work), and the numerator contains the number of labor force participants not employed (click here for all the details on this calculation). (Self test, what might the leisure- consumption graph we used when discussing individual labor supply look like for an unemployed person? At the wage this person expects to earn, they are willing to sacrifice leisure and gain consumption, but they currently are not working.)
Currently, the unemployment rate for the US is 8.9%. This is the highest it has been during your lifetime and is approaching the highest in the post-war period (for some males it has already reached these levels ). The unemployment rate is substantially higher here in Oregon. The last reported number was 12.1% (for March).
As dismal as these numbers are, there is growing debate about whether or not this is the measure of labor market health policymakers should care about. There are two groups of people that the standard measure of unemployment doesn't capture adequately. First, there are marginally attached or discouraged workers. These are workers who are actually willing to work at the wages offered, but who have given up trying to find work. As such, they are not in the labor force (and thus excluded from the standard measure). Second, some people are involuntary part-time workers. That is, they would like to work full time, but can only find part time work. (Note -- in both of these cases, individuals are not reaching the simple utility maximizing point derived from the simple labor supply model we discussed. Again, self test yourself on what the graphs for these individuals might look like. Are they reaching their ultility maximizing points? If not, why should we care?)
The data to account for these different groups are available (and are reported with increasing frequency). Including marginally attached workers in the denominator and excluding the involuntarily part-time from the numerator, the unemployment rate nearly doubles to 15.8% nationwide. As this discussion illustrates, the involuntarily part-time account for most of the difference (here's another discussion of this issue).
// posted by BW @ 9:41 AM 
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First I had a few questions about unemployment rates: Is there a huge increase in June every year from college students graduating and beginning to look for employment, or do they fall under some other category? Also, does a person with multiple part time jobs that works 40+ hours/week fall under employed?
I feel that the unemployment rate isn't helpful by itself, because it seems like you could manipulate the numbers to achieve any percentage you wanted, (i.e. Throwing in or taking out different categories of workers from the numerator or denominator). However, regardless of what method is used, the unemployment rate is helpful in comparisons over time (i.e. it's higher this period than last).
Here is a question, so 12% of Oregonians are unemployed, and probably in debt, next month a whole slough of college students will graduate with a large amount of debt. Is all that debt on interest rates that are tied to inflation, and if not is it possible for those now unemployed-in-debt people to do anything that could affect inflation (i.e. act in a way that creates hyperinflation so-as to make their student debt more or less disappear?)
I feel that the unemployment rate isn't helpful by itself, because it seems like you could manipulate the numbers to achieve any percentage you wanted, (i.e. Throwing in or taking out different categories of workers from the numerator or denominator). However, regardless of what method is used, the unemployment rate is helpful in comparisons over time (i.e. it's higher this period than last).
Here is a question, so 12% of Oregonians are unemployed, and probably in debt, next month a whole slough of college students will graduate with a large amount of debt. Is all that debt on interest rates that are tied to inflation, and if not is it possible for those now unemployed-in-debt people to do anything that could affect inflation (i.e. act in a way that creates hyperinflation so-as to make their student debt more or less disappear?)
The way the government figure out the unemployment rate is through survey (correct me if I'm wrong) and from there, they figure out the percentage. So, there should not be a jump every June when college students are graduating. Another thing to take into consideration is the speed at which workers entering and exiting the market.
I think the unemployment rate is helpful. It may not be the correct representation of the labor market at a point of time. But, it is, definitely, a great tool to measure the turbulence in the market.
I think the unemployment rate is helpful. It may not be the correct representation of the labor market at a point of time. But, it is, definitely, a great tool to measure the turbulence in the market.
# posted by 
: 2:04 PM
: 2:04 PM
By itself, I do not think the unemployment rate is a hugely important measure. If we remember, however, that the unemployment has empirically been proven to accurately predict the inflation rate, we can see that the measure can actually be quite telling. For example, it has been suggested that the natural rate of unemployment for the U.S. is around 5-6%. Anywhere below this, the tendency is for prices to rise, which leads to higher inflation. Whether you use 9% or 16% for the true unemployment, we can see that we may be facing deflation in the near future. Of course, the Federal Reserve has tried to fight this by lowering interest rates and raising the money supply, but, with rates almost down to 0, how much more can the Fed do? I believe the country would be in huge trouble if we were to face deflation. With the level of both private and public debt this country has, a relative appreciation of the dollar could be devastating.
# posted by : 8:36 PM
: 8:36 PM
I think the unemployment rate is very helpful. One it gives us a barometer of how our country is doing compared to previous periods (i.e. post-war periods, the '80's etc). Because the formula for the unemployment rate has been constant for decades it allows us a baseline for comparison.
This is another side to this matter, however. It seems by not including involuntary part-time workers economists are protecting the unemployment rate. In other words, they are not letting appear as bad as it may actually be. I mean 8.9% is bad, but it certainly doesn't have the shock and awe vale of 15.8%.
This is another side to this matter, however. It seems by not including involuntary part-time workers economists are protecting the unemployment rate. In other words, they are not letting appear as bad as it may actually be. I mean 8.9% is bad, but it certainly doesn't have the shock and awe vale of 15.8%.
One thing that comes to mind while reading the article about unemployment is the elimination of discouraged workers. Why would you do that? These workers are discouraged because they cannot find a job and have given up. This means by excluding them we are saying that the unemployment rate is at a lower rate then it actually is. In addition, you lose sight of policy goals by excluding such workers. By including them in the unemployment rate, we could make policy decisions that would make work more attractive for them and thus getting them back into the labor market.
These days the unemployment goes up very high. It is related to the economic situation. now, it is the bad time for everybody. Lots of business are suffering with bad economic status. Even there are many people fired during past months. For example in Eugene there was Hynix which had good contribution to Eugene economy. 2000 people are hired by this company for several years. It helps the community economy. But now it's closed. 2000 people are fired(If we consider their family it is probably more than 5000). Thank to this people's comsumption may decrease. It brings bad circulation. It is important how to overcome and how to encurged high unemployment rate for our economic situation.
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