Friday, December 5, 2008

About those unemployment numbers

Robert Reich asks the question, are we now in a depression?

Today's employment report, showing that employers cut 533,000 jobs in November, 320,000 in October, and 403,000 in September -- for a total of over 1.2 million over the last three months -- begs the question of whether the meltdown we're experiencing should be called a Depression.

We are falling off a cliff. To put these numbers into some perspective, the November losses alone are the worst in 34 years. A significant percentage of Americans are now jobless or underemployed -- far higher than the official rate of 6.7 percent. Simply in order to keep up with population growth, employment needs to increase by 125,000 jobs per month.

Note also that the length of the typical workweek dropped to 33.5 hours. That's the shortest number of hours since the Department of Labor began keeping records on hours worked, back in 1964. A significant number of people are working part-time who'd rather be working full time. Coupled with those who are too discouraged even to look for work, I'd estimate that the percentage of Americans who need work right now is approaching 11 percent of the workforce. And that percent is likely to raise.


Jonny said...

No- part of the reason for this recession is that we were overemployed- we were operating beyond the natural rate of unemployment signaling an overheated economy- the contraction is natural, and as with all contractions it's a pendulum swing that is moving too far to one side, but will swing back again. A depression is really defined by massive changes in GDP, and real GDP in the US has actually been stagnant or increased. It doesn't mean we aren't in a serious situation, but it's not a depression.

The US natural rate of unemployment should be between 5 and 6% depending on who you ask and how you calculate it. The mere fact that it's at 6.7% as of the last report doesn't signify that the US is that far off, though even a 1% change is somewhat significant.

The biggest problem with unemployment right now is that we are moving further towards a deflationary environment because people don't spend. Luckily, we have a pretty solid Fed (I know you're going to disagree) who is moving to solve this in every way they know how.

Steve Balboni said...

Of course we're not actually in a depression. Even Reich doesn't say that we are in a literal depression.

By what measure are you contending that we were overemployed? The unemployment rate in the months leading up to the current recession was 4.5% which is hardly an alarmingly low number.

But you're numbers on "unemployment" are simply misleading. The definition of unemployment has changed throughout our history and our current definition significantly deflates unemployment relative to other periods in our history. Underemployment, arguably a more accurate picture of our current unemployment rate, is at 12.5%. That's up from just 8% last month.

Yes deflation is an issue but it's not one that the Fed can solve. Monetary policy doesn't work in a liquidity trap. The solution will not come from the Fed but from massive fiscal stimulus. The Fed can't help us until we get more money flowing again - by having the government purchase goods (and not services) and subsequently putting people to work.

Steve Balboni said...
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