Economic News

The NY Times headline this morning was, "US Sheds Fewer Jobs Than Expected." The headline in the Washington Post was, "Employers Cut Fewer Jobs Than Expected." Both stories portrayed the loss of "only" 20,0000 jobs as good news. This is the fourth straight month with job losses, and yet the unemployment rate dropped by 0.1% from 5.1% to 5.0%. Am I the only one who sees something wrong with this picture? How can job losses translate to lower unemployment?

Economic statistics in general and unemployment statistics in particular have been a pet peeve of mine ever since I took Econ 201 at UW. I had always wanted to know more about how the economy and financial systems worked, and after that class I had a better idea, but also saw a lot of smoke and mirrors. (So now I'm an expert, or at least I know enough to be dangerous.) For the last 40 years, US governments have manipulated and fudged the statistics to make things look better than they actually are. The Consumer Price Index is no longer a fixed basket of goods. People are assumed to make substitutions (hamburger for steak, etc.) if prices get too high. Increased prices for goods are discounted because of the increase in "quality" for the same price. (Ipods are better than Walkmans even though they cost more, etc.) Income statistics include the "imputed" income from owning your own home. (That's the income you would have received if you had rented out your home.)

But my biggest peeve is unemployment statistics. Economists and pundits always talk about how great the US economy is compared to Europe or Canada. Unemployment in the States is reported at around 5%, and other Western countries are typically 3-4% higher. My point is that it's really hard to be unemployed in the US. You have to have been unemployed for several weeks, you have to be collecting unemployment insurance, and you have to be looking for a job. If you're recently unemployed, under-employed, or have part-time work, you're employed. If you've given up looking for work, are working under the table, are prematurely retired, or your unemployment benefits have expired, you're no longer counted. If you're in prison or the armed forces, you're not counted either. And these last two groups are not insignificant. Over 2.3M people are in prison in the US. This is the highest percentage of people in prison anywhere in the world! There are 1.5M in the Armed Forces. If prison and armed forces population percentages were closer to those commonly seen in the Western world, what would happen to the unemployment figures? How many people in prison and the military would be gainfully employed if they weren't where they are? If all of these figures are taken into account, it's not hard at all to come up with unemployment figures in the 8-9% range.

So in spite of the fact that the economic news here is generally not good, it's even worse than is being commonly reported.