- by New Deal democrat
It's tough to be a Doomer these days. Almost none of the data is cooperating. But at least one crutch they can always lean on is alternative unemployment measures that show a higher unemployment rate than the official 7%. It used to be that you could make a good case by citing the alternative U-6 rate that counts the underemployed. But even though that remains unconscionably high at 13.2%, it has been dropping in tandem with the official rate, and is down 3.9% from its peak in 2009 of 17.1%. It is now almost as low as the 11.8% rate in 1994 when the series was first published.
So the new methods work from pre-Great Recession employment to population ratios. One such method, favored by Mish and Naked Capitalism, is to assume that, except for the 2008-09 recession, the employment to population ratio would have remained constant at its level of about 10 years ago. This method boils down to, "What would the unemployment rate be in an alternative universe in which there were no Baby Boom, and Boomers weren't retiring in droves?" and has about as much credibility as that quote implies.
But there is a more sophisticated method that has been promoted by the Economic Policy Institute. They describe their method as designed to count "missing workers." They say:
In today’s labor market, the unemployment rate drastically understates the weakness of job opportunities. This is due to the existence of a large pool of —potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job. In other words, these are people who would be either working or looking for work if job opportunities were significantly stronger. Because jobless workers are only counted as unemployed if they are actively seeking work, these “missing workers” are not reflected in the unemployment rate.(Bold is my emphasis. We'll come back to that later.)
That method extrapolates from a November 2007 study by the BLS, which projected a trend going forward at that time, and which estimated the impact of Boomer retirements on that trend. Since that established the secular baseline, so the theory goes, so any deviation from that trend must show the "real" unemployment rate due to the Great Recession. Using that methodology, the EPI estimates that there are 5,660,000 "missing workers" as of November 2013, and so the current "real" unemployment rate is 10.3%, as shown in this graph:
See? told ya! There's no real "recovery" after all!
Sort of like the data series from the Household Survey called, ummmmm, errrrrr, "Not in Labor Force, Want a Job Now"!
Yes, ladies and gentlemen, there is a seasonably adjusted data series, updated by the Household Survey and included in the Jobs report every single month, which measures exactly what the EPI says it is trying to estimate in that phrase I bolded from their explanation: the number of people who haven't looked for a job in the reference period, but want a job now. And here it is:
As you can see, that number increased by 50% from trough to peak. And currently the number of such people is 5,740,000, which is very close to the EPI's estimate.
But what does that mean for the unemployment rate, if this group were included? Since the unemployment rate is the number of unemployed divided by the civilian labor force of which they are a part, to include those who want a job but haven't looked, we have to add them to both numbers, I.e., the numerator and the denominator. When we do that, here's what the number looks like since the start of the recession:
Well, lookie there, just over 10%, just like the EPI's number. See, it's really not a "recovery," right?
For starters, we didn't go from 0 "missing workers" in 2007 to 5.5 million now. According to the actual data, at its trough in 2007, the series measured 4,390,000 people. At its height in August 2012, it measured 6,956,000, before falling almost half the way back to its pre-recession low as of now. And at 5, 740,000 this is almost identical to the number in February 1995, not notably an awful period for the economy - and that's before adjusting for population growth since.
But the bigger problem for Doomers is that the data series "Not in Labor Force, Want a Job Now" goes back to 1994. So here's what happens to the unemployment rate when we include this group over the entire 20 year period:
The lowest rate ever is 7%, and the unemployment rate is as low now as it was in 1994. And since the end of the Great Recession, it has dropped from just under 15% to just over 11.%.
So, while I would count the EPI as among the "good guys," I'm at a loss for why we should be counting anybody who says they don't want a job now as among the unemployed. Unless and until the EPI gives me a reason to think otherwise, between the EPI's estimate based on a study from 6 years ago, and the Household Survey's actual number, updated monthly, of people want a job now but haven't looked, as far as I am concerned the Household Survey is far more accurate.
Finally, look what happens when we extrapolate by adjusting the official rate to fit the trend including this group, and extend the series all the way back for 50 years:
It looks like the current number is on par with the recoveries from the severe 1974 and 1981 recessions.
Like I said, it's tough being a Doomer these days. The data just isn't cooperating.