Jobless and underemployed Americans

The United States unemployment rate is the same as it was four years ago. Sure it has decreased in the past couple years, but the issue is still problematic. It is startling to see that unemployment is still unchanged since 2009; in fact there are 2 million less people working at the start of 2013 as there were at the start of 2009. Due to the difficulty of finding a job, many Americans have simply given up looking.  According to Trading Economics, the United States unemployment rate is 7.3%, which does not include those who are settling for part-time work or who are underemployed.

We are told that the economy is getting better, but just last month (October 2013) the United States economy lost over 600,000 full-time jobs. Also, according to the Federal Poverty Line Guidelines, 1 out of 4 part-time workers are living below the poverty line. For instance, the poverty line for a house of 4 is $23,330. This is a growing issue and should be addressed by the leaders of this country.


Dave Tufte said...


What does this have to do with ManEc?

Well, anyway, it's macro and I'm a macroeconomist, so here goes.

Yes, the unemployment rate is 7.3%, and it probably shouldn't be that high. It now matches where it was 58 months ago.

How much lower should it be? Well, it's kind of a contrived figure. We're comparing the unemployment rate to a date 10 months before it actually peaked. The last time we had unemployment like this was under Reagan. So if we go back to his peak unemployment, and then back 10 months before the peak, and then compare that going forward for 58 months ... we find that his unemployment rate was ... wait for it 6.6%. That's better, but not that much better. I usually tell my principles students that you can't even feel an unemployment rate change until it hits about 0.5%.

The 2 million less people working is true. But again, there's a problem. We're currently in a long-term demographic trend of people wanting to work less. This started in the late 90's, and isn't expected to change for at least a decade. If you plot out employment over the last 20 years ... the Great Recession and weak recovery is A problem, but not THE problem.

We also see a lot of news about how the 7.3% unemployment rate doesn't count those who are underemployed. The thing is ... it never did. So this isn't a new problem either.

Then there's last month's loss of 600K jobs. Economists are not too worried about this number because it looks fishy. If the economy really did lose that many jobs, we'd all be in a panic because we'd know one of those people. So, what we think is that, because of the partial government shutdown, some jobs weren't counted very well. The key with this piece of data is to keep watching it for a few months.

Lastly, there's the poverty rate. This is a contrived statistic. Our bureaucracy defines poverty in relative terms: someone with income below a certain percentage of average income is labeled as poor. If you think about it, poverty will never go away if you use that kind of measure. If we define poverty in absolute rather than relative terms, we'd need to decide on what a non-poor person has that a poor person does not. That list would start with food and shelter. What happens when we go at the question in this way is that we find out that what separates non-poor Americans from poor Americans is that the latter don't have ... premium cable, hardcover books, and so on. I don't want to seem unsympathetic, but I do want to emphasize that this is a topic for which the data gets very silly very quickly if you don't ask the right questions.

I don't mean to be harsh, but what 10-S-Pro has raised are 5 common talking points ... that aren't what they're cracked up to be. But, one of the problems with macro is that most people don't talk to a macroeconomist about what the numbers mean.

Dave Tufte said...

10-S-Pro: 100/100

Oops. Forgot that part.

BOHICA said...

I find it hard to look at unemployment rates and even poverty levels (to a certain extent) and put much faith in what those numbers are really telling you or what they actually represent. I agree with 10-S-Pro in that the unemployment rate includes those who cannot find a job and also those who have just given up looking.

The problem I have with it is that it also includes many who will not get a job because they are holding out for some sort of dream job to come along. I have family members, friends, and neighbors that all fall into this category. They are for the most part unemployed (or a few are underemployed), but yet they refuse to accept certain jobs that are available or even offered because there might be something better out there and they don't want to get bogged down with doing something that they think is beneath them.

Thankfully I have never been unemployed, but I would like to think that if I ever was, I would go out and immediately secure the best available job so I could provide for my family while continuing to look for something better rather than just remaining unemployed until my dream job comes calling.

Dave Tufte said...

BOHICA: 50/50


Part of the problem with measuring unemployment is separating out who's active from who's not. There is no good way to do this.

My solution is not to take the exact number too seriously. I'm not sure what our current 7% unemployment means. What I do know is that it's better than 8% and worse than 6%. I also know that because of current demographics, we're unlikely to get that below 5.5% or so.

The "poverty line" on the other hand, I find to be nothing more than a make-work definition for bureaucrats.

Quinn said...

Bohica & Dr. Tufte I agree that the numbers are only as good as the person interpreting them. I too have seen many of my neighbors, friends, and even some family either refuse to take an employment opportunity they feel is beneath them or all together stop looking for employment. I clearly recall a friend saying "there is no reason for me to look for work right now when I can make more off unemployment." What happened to living within YOUR means? My husband has been working 1st tier tech support positions for awhile. These have not been the best paying so far but it gave him experience in the field he wants to be in. He recently was hired by a software developer that within 2 days of starting went from a $19k a year, part time job, to a $40k a year full time position with tuition reimbursement. The point of this is people need to realize there is opportunity in the most menial of tasks. The hard part is being willing to drop pride and find those opportunities. I think if the underemployed and unemployed took on this kind of attitude it would make a large difference in the statistics we currently see. This change wouldn't drop the unemployment rate 2% overnight but I think it would have a much larger impact over the course of the next few years.

Dave Tufte said...

Quinn: 47/50 ("awhile" is an adverb, you want the two words "a while")

Opinions are OK in comments ... but where is the ManEc in this?

You are describing a debate that has been going on in macroeconomics for about 50 years.

What we should be concerned about, macroeconomically, is people who are involuntarily unemployed.

The thing is, all we observe is that people are unemployed. We have to make a judgement call about whether that condition is voluntary or involuntary.

Once you make that call, most people agree that you should give some support to people who are involuntarily unemployed, and less (or nothing at all) to those who are voluntarily unemployed.

This creates a moral hazard: people have an incentive to represent themselves as involuntarily unemployed when they may not be. Once they do that, then they may be less willing to pursue the sort of opportunities described by Quinn.

FWIW: one way to reduce this sort of problem is to make unemployment benefits payable only as a lump sum, and only once you get a job. Like most economic proposals though, this creates a different unintended consequence: more people quitting after getting the lump-sum.