Unemployment Rate 7.2% | Hacker News Reader

Unemployment Rate 7.2%

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37 pointskp21251 comments

Greenspun sliced up the unemployment numbers and got 9.1%

Unemployment statistics were redefined starting in the early 1960s by the Kennedy Administration. First they took out the "discouraged", people who wanted a job, but had stopped looking. Under the Reagan Administration, the workforce was expanded by adding in members of the U.S. military, who were by definition "employed", thus shrinking the percentage of "unemployed". The Clinton Administration reduced the number of households sampled from 60,000 to 50,000 and "a disproportionate number of the dropped households were in the inner cities." Phillips doesn’t talk about prisoners, but we have greatly increased our prison population, most of those incarcerated are working-age men, and none are counted in the workforce. Phillips claims that "Based on the criteria in place a quarter century ago, today’s U.S. unemployment rate is somewhere between 9 percent and 12 percent." [Poking around at http://www.bls.gov/cps/ reveals that, in 2007, 146 million of us were working, 7 million were unemployment, and 4.7 million were classified as not in the workforce but "wanted a job"; an additional 2.3 million Americans were in prison, presumably due to their energetic work habits in illegal trades. The "U-6" series, published by the BLS but almost never reported by newspapers, shows an unemployment rate right now of 9.1 percent.]

http://blogs.law.harvard.edu/philg/2008/04/23/cooking-gdp-un...

> Phillips doesn’t talk about prisoners, but we have greatly increased our prison population, most of those incarcerated are working-age men, and none are counted in the workforce.

Many prisons have inmates who work at various jobs. Should those jobs count? If not, why should we count folks in prisons?

I don't think that prisoners should be counted simply because they are incapable of finding real employment. It's despicable that the prisons only pay between a nickel and a quarter for an hour's labor. Worse yet is the private prison system that is funded by the government but can sell goods manufactured by what is, essentially, an enslaved people.

For this reason, those two million Americans cannot be considered as part of the real workforce, as their labor is essentially free.

We should count the number of prisoners as an extra hardship on our economy. There is the cost of keeping them in prison, the cost of when they get out, the cost of the children they have but are not raising.

Count yourself as one of the ones putting them in prison. For the public, it's not a hardship, but rather, an investment. Now, undoubtedly, destructive crime adversely affects the economy and community stability. Let's just hope that those in prison truly threaten enough harm to warrant the investment, or else we're wasting our money (It's always "ours" until you find yourself on the other side, right?) while severely damaging lives of others, such as the children you mentioned.

There is a more complex breakdown that what you suggest: "For the public, it's not a hardship, but rather, an investment."

For some of the prisoners, for some of the public, its an investment. For some of this same public, some of the other prisoners, it is a hardship. For some other part of the public, the breakdown is different.

The prison issue should eventually come into focus as the complex problem it is. Up to now its not talked about enough for most (including myself) to have a clear opinion.

I never understood American unemployment numbers. Many countries operate fine with far higher unemployment numbers. Canada was at 7 or 8% for many years, France is often around 10%.

Also, I remember reading an article that talked about the vast number of people who are excluded from the American data. People in prisons for example - 2 million people. There are also people who do not file unemployment claims or are ineligible to do so because of much higher restrictions in the US compared to more liberal societies. Therefore, US unemployment figures are always about 2% too low, but it is one of these 'psychological' stimulus the government gives. If our unemployment rate is near 0, then economy must be doing great!

Please correct me if I am wrong.

You're correct. The US only counts those looking for work.

AFAIK, everyone only counts those who are actively looking for work but can't find it: that's what the "unemployment rate" means.

http://en.wikipedia.org/wiki/Unemployment

No, people that don't have jobs but aren't seeking them are not counted in the US.

Right, but they aren't typically counted anywhere else, either. Did you read even the first sentence of the WP article?

The first sentence doesn't address differences in measurement, but I appreciate the snark.

I've read that Europe measures more than those that are seeking, meaning they overestimate (or the US underestimates) unemployment.

Scrolling down, the EU measure looks like the US measure, so maybe things changed since I heavily head econ blogs. Perhaps you can read more than the first line of some other resources and report back on the change?

the BLS labor statistics only count people actively looking for work, and leave out 'discouraged' workers.

Only one small correction: if the unemployment rate really approaches 0, then you have trouble, because growing businesses won't be able to hire, and there'll be missed growth opportunities.

The same is true in a consulting firm, for example. You want "chargeability" to be as high as possible, but if everyone is always out on projects, and there's no one on the bench, then you can't staff new projects that come up - which may hurt your existing client relationships, or prevent you from building up new clients, etc. So ideally you still want to have some people on the bench, free to take up new projects.

Even if everybody is employed, people would still be looking out for better jobs than what they currently have. So I don't think there would be missed growth opportunites.

This idea, in itself, seems erroneous. For a system where everyone is employed and no missed opportunities vs. the counterpart (per swombat), you assume that the liquidity of human capital is the same, by virtue of people constantly looking. It seems incredulous that it will.

I'm actually less interested in whether your statement is correct or not, but more in the reasons why you believe this (and why there are people who agree with this idea).

The scarcer employees get, the more will employers be willing to pay to get them. So yes, I think the liquidity of employees will remain roughly the same.

I forgot to mention something in my last post. It isn't so much the assumption of liquidity, but the assumption that given the particular kind of liquidity, the efficiency (in terms of opportunity cost) can be the same.

When I said liquidity of human capital, I did not want to mean person P moves from company X to company Y. I wanted to mean person P's production power (in terms of output, factoring in creativity, and the myriad of other factors), within the system (which also factors in P's capacity to induce disruptive changes) gets transferred seamlessly from X to Y. Again, this does not seem at all possible. Neither does this factor in effects of people spontaneously regrouping (i.e. forming startups). Having people in stable structures inherently slows down regrouping quickly, and you cannot assume that capital (money, enticement, whatever) can induce it to become efficient, simply because transfer of resources takes time and distance.

Of course, with the ideal assumptions of perfect information and instantaneous transfer of all resources, this would seem to work, but these are the same assumptions that ground many economic models permanently in theoretical territory.

Now, is there still a good reason to think the systems can be the same?

"Having people in stable structures inherently slows down regrouping quickly, and you cannot assume that capital (money, enticement, whatever) can induce it to become efficient, simply because transfer of resources takes time and distance."

So you argue that having some people unemployed will in the long run prove more profitable for the economy? Then inevitable a market will evolve around this and someone will come around and pay people to remain unemployed (possibly requiring a fee when they finally take a job).

"Of course, with the ideal assumptions of perfect information and instantaneous transfer of all resources, this would seem to work, but these are the same assumptions that ground many economic models permanently in theoretical territory."

If you're strictly talking about the real world, then I agree that unemployment will never reach zero and that it may be true that having unemployment may lead to more economic growth. But it may also lead to less growth. We can't be sure. Therefore we have to assume some kind of ideal model.

I'm actually not making any argument about profitability in the long run. Simply about whether swombat's comment about missed opportunities, or your comment that there won't be missed opportunities, holds.

I am now able to see how your situation would work, so I will abandon my deep skepticism. But I have also come think it's far more complex than any of these comments. They now both seem plausible, and I don't think either of you can be certain without substantial justification. :D

Another factor that might explain why US unemployment is lower than European countries like France & Germany.

The barriers to hiring & firing workers are typically much higher in most European countries. In the US, the laws make it easier to hire & fire, so the employment process is more "efficient".

France has both difficult firing and minimum wage. In Germany it's not as bad: Firing is difficult, but there's no minimum wage for most jobs. Unfortunately minimum wage laws are all the rage, now.

First, I should correct you that both the US and Europe use the International Labour Organization's definition for unemployment: "those who are currently not working but are willing and able to work for pay, currently available to work, and have actively searched for work." Europe implements this as people who are not working, have looked for work within the past 4 weeks, and are available to start work within the next 2 weeks. The US methodology differs slightly, but not in a statistically significant way stating that workers must not be employed, they must have looked for work sometime in the previous 4-week period, and they must be available work work. The last part differs, but since these are surveys, I don't think anyone being asked "are you available for work?" would interpret that to mean at the precise moment. So, the US doesn't define "in the next two weeks" and so some people might interpret it to be a longer period and some might interpret it to be a shorter period, but I don't think you can say that American numbers don't count people that European numbers do count.

So, European and American unemployment rates can be compared with decent accuracy. The fact is that governments want accurate data. Inaccurate data just makes it harder to create policy that helps those governed.

One of the nice things about the American unemployment numbers is that they're more than a gross rate. The US also publishes numbers by certain groups. That allows me to say that the unemployment rate for men is 22% higher for men than for women or that teenagers have been the hardest hit group with unemployment at 20.8% for them. Likewise, there are interesting (if not meaningful) differences in the unemployment rate changes between groups. The African American unemployment rate is up about 30% YoY while the Caucasian unemployment rate is up a whopping 64% YoY.

Full data: http://www.bls.gov/news.release/pdf/empsit.pdf

So, why is American unemployment a bigger issue? You already mentioned it: we've got less good stuff coming from the government when we don't have a job. Healthcare especially is a problem. Beyond that, the amount of time that unemployment benefits last, the amount of each check, etc. just aren't as good. Unemployment is more of a hardship in America than in Europe. Europe has seen very hard times and it created a system that would allow people to get through many years of tough times. America has been able to limit tough times to be much shorter periods and, generally speaking, just has a "get off your butt" attitude.

Partly, this is because America has allowed for drastic economic changes in a way the Europe hasn't historically. The United States is more ready to see old industries die and to start new ones in their place. And so hard times do come (it's inevitable that you can't make something perfect), but they tend not to last as long.

Before I go further, I want to say that much of this is historical. The Europe of today isn't the Europe of even 20 years ago. That said, one way of thinking about this is code refactoring. It takes time, it can be painful as things that worked stopped working as you fixed it. However, arguing that something is working and just trying to (indefinitely) prevent any non-work in order to realign things for a better future is worse.

It's my personal belief that governments can help smooth over the "refactoring" by encouraging new industries to locate near industries that are closing down. Note, this can't be a "we'll just lower our taxes" scheme. There's no point in lowering taxes on a dying industry or throwing long-term government support behind it simply because failure of that industry means unemployment. You need to be smart and find industries that are likely to be growth industries that will progressively demand more labor as time goes forward. Keeping people employed is great, but encouraging industry that increases employment in the long-term is sooooooooo much better. And government can incentivisze new industries. It's hard and often people hate it because they see it as discriminatory against industries not getting the cool incentives, but some industries do benefit communities more than others and some industries are growth and some aren't.

In closing, I'll just say this: in the face of an economic crisis, it might be a good idea to repeal the employer part of the payroll taxes (note the might qualifier since I haven't studied this). It would lower the cost to employ someone by, what, 9%? As the cost of labor goes down, employers want more of it. And when the economy gets good again, it could be reinstated or not and if not would really just be passed to workers as salary increases (just like the employer part of the payroll taxes makes them pay you less each year because they need to pay the government for your employment).

Are you suggesting that government should try to pick winners for which industries are likely to grow? How do you expect bureaucrats to do that? Industrial policy has a terrible track record in most countries.

Unemployment is often portrayed as the cost that european countries pay for supporting developed welfare states. According to this line of thought, it is ok for the US to have much less advantages for unemployed people since it is much easier for someone who lost his job to find a new one.

If the US unemployment gets close to their european counterparts, this argument becomes harder to believe.

Until you look at France et al. and find that they have > 8% unemployment in the good times.

Another major difference is that unemployment benefits are much better in places like France and Holland and it encourages people to stay unemployed. Though we're not immune from this problem either. I recently met a lady who was, "on fun-employment," as she called it. "I get a card from New York City every two weeks that gives me cash from most ATM's. My rent also gets paid. I'm moving in with my future husband at his apt in the Hamptons but we're keeping my place in the city in case we want to come party for a w/e." When I asked how long things would go like that she said, "Another 15 weeks to be sure, but if I fill out some paper work I could stretch it to 40 weeks, and I hear that Obama wants to add another 9 weeks, so all it all it's about a year."

Anyone ever use fun-employment to bootstrap as startup? :)

fun-employment

Please be a dear and forward that woman's contact information to the New York Republican Party. She has excellent career prospects as a talking point. (Hey, it worked for Joe the Plumber.)

I haven't been so disgusted since my $40,000 a year university had a newspaper publish instructions on how to apply for welfare benefits, "as most students are legally entitled to them and, hey, free beer money". (Some of us worked our way through college. Surveying the few I can remember, I think all moved rightward over their four years. Wonder why.)

What is wrong with getting support from the government while you are in school?

I didn't think full-time students were eligible for anything. I worked through school but still came out with over $60k of student debt. I would have done anything to reduce that, even take government handouts.

I'm glad you had the courage of your convictions not to apply for the benefits, though.

I would have done anything to reduce that

I sympathize with the aversion to debt but have to note that, empirically, you were not willing to do "anything" to reduce that because you could have gotten a sheepskin from a perfectly acceptable state university for about a fifth of the price.

Now there are many reasons to prefer what you did to what you could have done, but I think paying for your choices is your responsibility, not the responsibility of the rest of us. For example, had you gone on public assistance merely because it was possible due to a bug in the law, you would be transferring money to yourself from folks without college degrees who work much, much harder than you or I ever will. There is no justice in that. The hypothetical availability of that as an option also corrupts your incentives to choose cheaper options like that state school I was just talking about. When you replay those distorted incentives across the whole market, this just increases education prices for everyone.

(This is why I think that subsidies for higher education, such as grants and subsidized loans that I favor in principle, need to be carefully kept in check for them to have any meaning. Otherwise you end up with a bidding war between the colleges and subsidizer for who can pull a higher number out of thin air, with the number eventually footed by the taxpayer. Which is exactly where we have been for the last two decades, with tuition galloping in front of inflation every year.)

I note in passing that you, or any student similarly situated, should be more than willing to take on $60k of student debt in return for any undergraduate education that results in a profession because the delta in earnings outcomes exceeds the loan payments (including interest) by a stupidly high margin.

Sorry, you are wrong.

I went to the cheapest school I could go to.

I think your comment advances a common misconception, that unemployment percentage figures are derived from unemployment insurance benefit filings.

They're not. The unemployment percentage figure comes from a household survey by the federal government that simply asks people if they lack work and are looking. Whether one is eligible for, has applied for, or is receiving unemployment benefits is irrelevant.

from:

http://money.cnn.com/2009/01/09/markets/thebuzz/index.htm?po...

"But one prominent critic, John Williams, an economist and publisher of the research site Shadowstats.com, said that when you take into account the large number of people who have been so discouraged by job market woes that they have not been actively looking for work for more than a year, the unemployment rate is actually as high as 17.5%

Williams explains that prior to 1994, all people who were "discouraged workers" were counted in the unemployment survey. But that's no longer the case. So he believes his number is more of an apples-to-apples comparison to some of the numbers cited about the peak level of unemployment during the Great Depression, which was around 25%.

What's more, Williams believes that this and other tweaks to the employment calculations over the past few decades were designed to give a more optimistic view of the economy.

"I think it's true that changes have made to make numbers look better. If you don't think the system is political, you don't know the system." "

Think about this for a moment. 17.5% means that ~ every 1 out of 5 is out of work. Look around you. Does that even seem possible. That number is like the numbers proclaiming that there are 3 million homeless in the US and that men on average have more sexual partners than women (by a ratio of ~7 to 4). Its complete bullshit and if people thought about it for just a few minutes, they would realize it.

I'm pretty sure you can explain the difference in averages between men & women's sex partners by a very large variance. E.g. village bicycles & nuns vs regular man-slut Joe six-pack.

That wouldn't do it by itself, actually.

Let us examine the Village of Virtuous Women, where there are 100 men and 100 women. 99 wives are faithful to their husbands. All the men are unfaithful with the 100th wife (except, of course, her husband -- who I really feel for).

Average number of partners per man: (2 + 2 + 2 + ... + 1) / 100 = 1.99

Average number of partners per woman: (1 + 1 + 1... + 100) / 100 = 1.99

You can also justify this with "Sum over a gender of number of sexual partners equals the sum over the gender of sexual partnerships, and if we only consider heterosexual partnerships, then this must be symmetric for both genders. Thus, since number of people in both genders is approximately equal, average number of sexual partners must be approximately equal."

So what actually causes the disparity? It has to be either a) untruthfulness or b) unsampled outliers. For example, if in the Village of Faithful Women the unfaithful wife got missed in your phone survey, you'd blow the results completely now wouldn't you.

But in the instant case, it is highly likely that the answer is in fact untruthfulness (both overreporting and underreporting).

Not quite. A ratio of 7 to 4 means that the number of heterosexual males is 7/4 times the number of heterosexual females. Since the ratio of men to women in the US is ~50-50 (as well as in most countries), If that statistic is correct, at least 42% of all men are homosexual. A laughable claim. Whenever you read statistics, _always_ take them with a grain of salt and run them through a common sense analyzer.

Those numbers are absolutely meaningless, since they count a $70K/yr job, in the same category as a $7/hr burger flipper.

You can take that 7.2%, and pretty much double it for all the people who got fired, and had to take a job paying half of what they used to make.

That's okay, as long that effect is roughly equal in every period of increasing unemployment. This and many other factors make it meaningless to treat unemployment additively, e.g. to say that 8% unemployment is "twice as bad" as 4%, but it doesn't diminish the number's comparative value, telling us whether we're better or worse off than before.

And to be the contrarian:

The NFP is Meaningless

http://www.ritholtz.com/blog/2009/01/counter-intuitive-nfp/

The author is absolutely right - we knew this was coming. Another item he might have mentioned to bolster his claim is that there are other unemployment related statistics that are more meaningful than this one, commonly referred to as the "headline" number.

In fact, I googled as I was writing this post and found he addressed this 6 months ago, and made exactly the same case I'm about to make- the U3 number that is the "headline" number should be ignored, and we should focus attention on the U6 number. (http://www.ritholtz.com/blog/2008/06/unemployment-reporting-...)

A quick synopsis of the U6 measurement from his post: "U6, on the other hand, is the broadest measure of Unemployment: It includes those people counted by U3, plus marginally attached workers (not looking, but want and are available for a job and have looked for work sometime in the recent past), as well as Persons employed part time for economic reasons (they want and are available for full-time work but have had to settle for a part-time schedule)."

He also links to a nice chart: http://bigpicture.typepad.com/photos/uncategorized/2008/06/0...

Just a minor nit: if a marginally attached worker looked for work, he would be unemployed.

"Unemployed" == "Not working but looking for work."

"Marginally attached" == "kinda wants a job, but not enough to actually look for one."

I'm interested in seeing how the unemployment numbers break out.

In the recent past, unemployment amongst people with a Bachelor's degree or better is about 2.2%^. So nearly zero. I'd imagine, though I'm not sure, that most people on HN have a bachelor's or better and thus most of us are at a lesser risk of unemployment than others. I think when this number changes we will know it's fundamentally different from other recessions that we've had in the last 30 years.

It's the rest of the population that takes the brunt of the economic downturn. Recently there has been reverse immigration, people leaving the US^^. And most of the people that are being hurt by unemployment don't have proper skill sets to just get another job.

I know a number of internationals working in the US and they are all still employed and in demand. Most people think that people on Visas are at risk. In fact I think there are plenty of jobs for the well qualified. Most of the professional Visa / Green card holders in the US got here because they were uniquely qualified - and that doesn't change with an economic downturn. There is, especially from my perspective, still continued demand for good IT people and good programmers^^^. Against popular belief but understood here at HN; not all programming jobs are outsourced. But many high schoolers and their parents believe this, so there are less people going into tech. This, of course, is good news for those of us who are already in tech. It also does a great job protecting us from economic downturns compared to other fields.

The WSJ, as usual, is out to sensationalize business as much as possible. I like the WSJ and read it regularly. I try to take it with a grain of salt. They'd like to have you believe the economy will never turn around. Because then when it DOES turn around it'll be great, new and unexpected news. In the end it's all about page loads or papers sold after all.

^ http://www.bls.gov/emp/emptab7.htm

^^ http://latinobusinessreview.blogspot.com/2008/12/hispanic-im...

^^^ Reported by the ACM so take it for what it is... http://www.cio.com/article/466228/IT_Careers_Expected_to_Sur... and http://www.networkworld.com/newsletters/edu/2008/120108ed1.h...

[EDIT: Formatting, and some additions ;-)]

now is the time to hire.

You can pick up some good deals. Right now, especially with the 'just out of college' crowd, and if it's like the last downturn, in a year or two you will be able to find good people who got discouraged and did retail work for a while.

keynes created the fetish of full employment.

Sources?

have you read the General Theory of Employment Interest and Money? directly from the book: "THE outstanding faults of the economic society in which we live are its failure to provide for full employment" -from the chapter: Concluding Notes on the Social Philosophy towards which the General Theory might Lead

Keynesian economics focuses on full employment and income distribution as the primary failings of classical economics. In attempting to address these two non-problems keynes introduced blatant scientism into economic discourse.

I know that Keynes cares a lot about full employment. But you said he introduced it as a concern. Do you have sources that nobody cared about it before?

the only pre-keynes material I have been able to find is keynes' ideological predecessor Jeremy Bentham. Keynes is the one who popularized the approach and introduced policies that were actually adopted by government. control over monetary expansion to the degree that is required wasn't possible until the Federal Reserve was established.

When I say that keynes created the fetish of full employment, I mean that post-keynes it was a continuing concern of government, whereas pre-keynes it had not been.

Thanks!

The unemployment rate for IT workers is still closer to 2% according to an article I read somewhere recently (sorry, don't have the reference).

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