Unemployment Looking Down

The Washington Times (Washington, DC), August 10, 2004 | Go to article overview
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Unemployment Looking Down


The good news on unemployment last month was hidden beneath the official data. The Labor Department reported the national unemployment rate ticked down a tenth in July to 5.5 percent, a 33 month low. But the decline among the inactive unemployed was much greater.

The inactive or "hidden" unemployed are people not currently looking for work, but who enter the job market in the hope of finding work when they see employment prospects improve. The inactive unemployed are not included in the official unemployment count, although the concept and measurement of hidden unemployment is well established in the economics literature.

The short-term behavior of hidden unemployment is in part reflected in the month-to-month movements of the labor force participation rate - the proportion of the working-age population in the work force. Last month, the participation rate jumped up, from 66.0 percent in June to 66.2 percent in July, as substantial numbers of the hidden unemployed entered the active job market. Had they not found jobs, the official unemployment rate would have soared. It didn't. Why? Because they found jobs.

The Labor Department collects employment data from two independent surveys based on employer payrolls and household interviews. When survey results conflict, economists tend to favor the employer survey mainly because of its larger sample size. But even if employment from the household survey is second best, it still has validity and should not be ignored, as it frequently is. Last month it had a lot to tell.

It's the household-generated employment count that directly influences the official unemployment rate - both come from the same survey. So it's inconsistent for the media and other data users to accept and highlight the unemployment rate every month but ignore its sibling statistic on employment. Both the employer and household employment data should be taken into account in assessing the monthly job situation.

The rise in payroll jobs last month was tepid, although it was the 11th monthly increase in a row.

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