Unwelcome Unemployment; Statistics Not the Whole Story

The Washington Times (Washington, DC), October 15, 2009 | Go to article overview
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Unwelcome Unemployment; Statistics Not the Whole Story


The inching up of the unemployment rate from 9.7 percent in August to 9.8 percent in September doesn't begin to convey the disastrous deterioration of the labor market.

Total civilian employment last month plunged by 785,000 (a change that more than meets the criterion of statistical significance in the government's monthly household survey). Employer-reported non-farm payroll jobs fell less but still by 263,000, more than the August decline in jobs. When civilian employment is adjusted to be consistent with the definition of payroll jobs, the September decline was still a huge 662,000.

The reason the unemployment rate didn't rise more last month is in part traceable to the behavior of labor supply as reflected in the labor-force participation rate - the percent of the working-age population in the labor force. The participation rate dropped from 65.5 percent in July and August to 65.2 percent in September, which lopped off about 700,000 from the official unemployment count.

Had labor-force participation continued at its July-August rate, the unemployment rate in September would have jumped to 10.2 percent, a half point above August.

The year-over-year contraction in the September participation rate was even more dramatic. The decline from September 2008 amounted to 0.8 percentage point, the largest drop in nearly a half century - a fact not mentioned in the Labor Department's press release or in mass-media reports.

Why has labor-force participation fallen off so dramatically? For one thing, job searching is not costless, and the unemployed understand that jobs have all but dried up and hunting is all but useless, at least for the present. Also, unemployment benefits have run out for many of the unemployed, so they may feel less compelled to continue looking for work besides being less able to afford it. A further extension of benefits is likely to resuscitate job searches and bump up the unemployment rate somewhat.

If the participation rate reflects supply behavior, the employment-population rate (percent of the working-age population who are employed) is more a measure of worker demand. The monthly employment rate has worsened over the course of the current recession, and year-over-year, it has worsened progressively. The annual decline in September was 3.1 percentage points, a record drop in the postwar era - another fact not mentioned in the government's press release or in the mass media.

Making the labor market picture even bleaker, the Labor Department dropped a bombshell in its latest employment release when it announced the preliminary annual estimate of the benchmark revision to payroll jobs.

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Unwelcome Unemployment; Statistics Not the Whole Story


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