Monday, January 9, 2012

Will the Real Unemployment Rate Please Stand Up?

Despite the breathless claims that the economy is getting better as witnessed by the supposed improving jobs numbers, it is important to note the relevant numbers.

If jobless claims are declining because the number of people seeking jobs is declining then the reduction is not a measure of economic improvement rather, the statistic reflects job seekers giving up and dropping out of the work force.

Art Laffer wrote in his January 5th report, Housing, GDP and the 2012 Election that today's unemployment rate stands at 8.6%. (U-6 which is the measure of those who have accepted a part-time job but are seeking full time work--the underemployed--is now at 15.6%). But, the most important measure is the labor force participation (those still looking for work) which has dropped from 66.1% in late 2007 to 63.9% (Laffer Associates). This decline is confirmed by the duration of unemployment which currently hovers at 41.1 weeks against a sixty year average of 14.4 weeks (Housing). In other words, since January, 1948 the average number of weeks an individual was unemployed is 14.4. Until now the previous peak was approximately 22 weeks during the early 80's recession. We currently sit at 41.1 weeks.

This is unsustainably bad news and should be reported as such by the media rather than lauded with selective statistics that do not reflect the reality of the lives of millions of Americans who simply want to get back to work.

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