This has always been the case, though. The top-line unemployment rate does not, and has not ever included people who aren't looking for work. So why is Jay Powell just now losing faith in it? Why was it ok to make economic policy based on this narrow definition before?
Could it be because "not looking for work" was the result of more "natural" forces (disability, old age, etc) in years past?
Criticism of the mainline “U-3” unemployment rate has been long-standing and widespread, though not by the incumbent party or central bankers generally. As the Financial Times piece notes, this change has “big policy implications”, an extreme understatement. The criticism comes from both the present administration and the quasi-independent Federal Reserve.
Note that unemployment in the US is measured by the Department of Labour, not the Federal Reserve, and likewise for the Fed’s other policy target, inflation — don’t measure what you regulate being the guiding principle. There are actually six measures of unemployment tracked by DoL’s Bureau of Labour Statistics, creatively named U-1, U-2, U-3, U-4, U-5, and U-6, described in Table A-15. Alternative measures of labor underutilization. Most critical and significant to this story is the determination of just who is, or is not, included in the definition of the denominator “US Labour Force”, which is now considered far too exclusionary a measure. As the article notes:
The fear is that a significant number of people will never return — and will be part of along-term economic scarring left by the pandemic.
> Could it be because "not looking for work" was the result of more "natural" forces (disability, old age, etc) in years past?
This is my guess.
My interpretation is that the concern is that COVID is leading to more discouraged workers than would be expected under normal circumstances, and so the top-line unemployment numbers are now understating or failing to reflect a critical impact of the pandemic.
It’s important because the Fed is interested in the NAIRU - non-accelerating-inflation rate of employment.
Below a certain level of unemployment, the NAIRU models expect wage inflation (companies offering higher and higher wages to get new employees in a tight labor market) which drives inflation in the broader economy. This model kind of assumes that the labor force is inelastic. In reality if unemployment were low, a lot of “unemployable” or underemployed people would probably start looking for jobs, which makes it so current unemployment rates don’t accurately reflect how close we are to NAIRU.
I think there’s a lot of jobs that will never come back. While visiting HQ in Washington, I noticed most of the little cafes and convenience stores around the area were closed or only open for lunch. We’re at 60% working from home, and management is considering how to push that to 90%. If companies like mine, a large SAS monolith, move their people out of the offices and buildings, who will shop and dine at those small places? I worry they may not recover.
It's about time this sees some daylight. I've been explaining this to people for years. I'm really not sure why it's been kept this way for so long and why the media never comments on how it works when reporting these statistics.
The economy has not reacted to the unemployment rate as it should since the housing crash. I don't know what all is broken but *part* of it I think is the gig economy--you aren't unemployed if you scrape up a bit of money that way.
If they really want something to question it should be how inflation is calculated. Almost everything is going up in price and it doesn't seem to reflect in the inflation. How it's calculated really needs to be revisited and modernized.
Your comment doesn't reflect reality at all. For the years prior to the 2016 elections, the economic news was loaded with optimism and high-fives - while the majority of US counties were stocked with people who regularly went without food.
It's not that there was zero improvement; it's that the pace of recovery in most of the US was a small fraction (often near zero) of what it was in the wealthy regions.
a) It's not journalists questioning these numbers, it's politicians and economists, and b) the criticism is long-standing and entirely accurate. Folks have been criticising this statistic for many years, and COVID has only made those criticisms more salient.
The top-line unemployment numbers factor out a large number of cohorts. For example, the number of people who've permanently stopped looking for work aren't counted.
COVID has inflated numbers in those cohorts and the top-line figure is likely understating these effects as a consequence.
Unfortunately, you've opted for a pithy dismissal based on, frankly, a cliche about mass media that offers no value or insight.
Oh freaking finally. I've been making the point for years that OUR is about 20% of total (all 16-64 minus ft+pt 16-14) unemployment.
I understand that the total includes self-employed but it also includes underemployed.
I am convinced that the most important employment numbers are:
People who are insufficiently (less income than needed to sustain until death) employed. I believe that number is much higher than even total unemployed.
People who are critically (less income than needed for regular bills plus typical emergencies) un/under-employed.
Compared to the reality of Americans, OUR is full-on bullcrap.
To your point, employment is an archaic, broken metric (from the "before times", when stable jobs throughout the economy were a thing). Jobs are poor indicators compared to a metric more robust and blended, such as income, needs being met or not by income, etc.
"Does your current income situation allow you to comfortably meet your basic needs?" "If not, how much is your monthly shortfall?" would be better questions to gauge consumer financial health versus "Do you have a job?" I assume this would not paint a pretty picture of the American labor market.
Even among those who can meet their needs, underemployment is still a serious issue. There are lots of people over-qualified for the jobs they have (the stereotypical barista with a masters) who could be producing more value elsewhere, and plenty of people working non-standard hours which skew the metrics (lots of people working excessive hours that really should be counted as 2 jobs, and lots of people who would normally be full-time being kept part-time to avoid paying benefits). The number of people with employment that adequately utilizes their skills without burning them out has dwindled substantially in recent years, and while the cost of lost economic opportunity and increased fatigue is difficult to quantify, it is certainly substantial.
Well, the unemployment rate is inherently a BS, deceptive metric. True Labor Force Participation Rate (LFPR) is a much better one because of who the UR conveniently excludes.
I seriously doubt many policymakers except progressives have "lost faith" in UR because it can be selectively-sculpted to make the economy seem amazing.
> True Labor Force Participation Rate (LFPR) is a much better one
No, it's not, among many other reasons since treating LFPR as if it was unemployment treats, say, a demographic boom reaching retirement age as if it were a mass unemployment event.
Or a long term trend of increasing average years of education as, ceteris paribus, a long term trend of increasing unemployment.
Or a long-term trend of increasing incarceration and forced labor as, ceteris paribus, a long-term trend of increasing unemployment (it's a problem trend, but it's a completely different problem than unemployment.)
And, worst of all, LFPR completely ignores actual unemployment. If no one was employed and everyone was actively looking for work, you would have 100% LFPR even though you had 100% unemployment.
Alternative employment/unemployment measures are important to capture different aspects of the employment landscape, which is why they are collected in the first place—the issue isn't unidimensional. But LFPR is not a better (or even a good, or even, without adjective, a) measure of unemployment.
> the UR can be selectively-sculpted to make the economy seem amazing.
Beginning a few years after 2008, came endless news reports of our recovering and robust economy. That was hard to reconcile during times mine/other families were eating nothing but rice (except when we couldn't afford rice).
Huzzah for only reporting from US's wealthiest regions.
Before the pandemic the weekly initial jobless claims had a maximum around 650,000. We’ve had around 50 consecutive weeks where this number has been well above 700,000. The stock market is at an all time high. We had an attempted coup in January and have seen government mismanagement to an extreme level in Texas recently.
An attempted coup? You have to be joking. I think you are reading a little too much Vox.
I am really curious what you mean about Texas mismanagement? If you are talking about energy, that has been in place for a very long time. If you are talking about revoking COVID mandates, the majority of Texans are for it.
If you would like to talk about mismanagement, we should really be more focused on California and New York.
[+] [-] dredmorbius|5 years ago|reply
[+] [-] websites2323|5 years ago|reply
Could it be because "not looking for work" was the result of more "natural" forces (disability, old age, etc) in years past?
[+] [-] dredmorbius|5 years ago|reply
Note that unemployment in the US is measured by the Department of Labour, not the Federal Reserve, and likewise for the Fed’s other policy target, inflation — don’t measure what you regulate being the guiding principle. There are actually six measures of unemployment tracked by DoL’s Bureau of Labour Statistics, creatively named U-1, U-2, U-3, U-4, U-5, and U-6, described in Table A-15. Alternative measures of labor underutilization. Most critical and significant to this story is the determination of just who is, or is not, included in the definition of the denominator “US Labour Force”, which is now considered far too exclusionary a measure. As the article notes:
The fear is that a significant number of people will never return — and will be part of along-term economic scarring left by the pandemic.
Indeed.
[+] [-] CarelessExpert|5 years ago|reply
This is my guess.
My interpretation is that the concern is that COVID is leading to more discouraged workers than would be expected under normal circumstances, and so the top-line unemployment numbers are now understating or failing to reflect a critical impact of the pandemic.
[+] [-] opportune|5 years ago|reply
Below a certain level of unemployment, the NAIRU models expect wage inflation (companies offering higher and higher wages to get new employees in a tight labor market) which drives inflation in the broader economy. This model kind of assumes that the labor force is inelastic. In reality if unemployment were low, a lot of “unemployable” or underemployed people would probably start looking for jobs, which makes it so current unemployment rates don’t accurately reflect how close we are to NAIRU.
[+] [-] underseacables|5 years ago|reply
[+] [-] WarOnPrivacy|5 years ago|reply
The pandemic didn't craft a new future, so much as accelerate the timetable of the one that was coming anyway.
Working from home took off because corp's legacy-driven resistance was eroded by catastrophic events rather than typical ones.
[+] [-] 908B64B197|5 years ago|reply
[+] [-] guerrilla|5 years ago|reply
[+] [-] LorenPechtel|5 years ago|reply
[+] [-] wocoloco247|5 years ago|reply
[+] [-] unknown|5 years ago|reply
[deleted]
[+] [-] jjcon|5 years ago|reply
[+] [-] hanniabu|5 years ago|reply
[+] [-] WarOnPrivacy|5 years ago|reply
It's not that there was zero improvement; it's that the pace of recovery in most of the US was a small fraction (often near zero) of what it was in the wealthy regions.
[+] [-] CarelessExpert|5 years ago|reply
a) It's not journalists questioning these numbers, it's politicians and economists, and b) the criticism is long-standing and entirely accurate. Folks have been criticising this statistic for many years, and COVID has only made those criticisms more salient.
The top-line unemployment numbers factor out a large number of cohorts. For example, the number of people who've permanently stopped looking for work aren't counted.
COVID has inflated numbers in those cohorts and the top-line figure is likely understating these effects as a consequence.
Unfortunately, you've opted for a pithy dismissal based on, frankly, a cliche about mass media that offers no value or insight.
[+] [-] pii|5 years ago|reply
[+] [-] Floegipoky|5 years ago|reply
[+] [-] qntty|5 years ago|reply
[+] [-] hanniabu|5 years ago|reply
[+] [-] WarOnPrivacy|5 years ago|reply
I understand that the total includes self-employed but it also includes underemployed.
I am convinced that the most important employment numbers are:
People who are insufficiently (less income than needed to sustain until death) employed. I believe that number is much higher than even total unemployed.
People who are critically (less income than needed for regular bills plus typical emergencies) un/under-employed.
Compared to the reality of Americans, OUR is full-on bullcrap.
[+] [-] toomuchtodo|5 years ago|reply
"Does your current income situation allow you to comfortably meet your basic needs?" "If not, how much is your monthly shortfall?" would be better questions to gauge consumer financial health versus "Do you have a job?" I assume this would not paint a pretty picture of the American labor market.
[+] [-] jjk166|5 years ago|reply
[+] [-] airhead969|5 years ago|reply
I seriously doubt many policymakers except progressives have "lost faith" in UR because it can be selectively-sculpted to make the economy seem amazing.
[+] [-] dragonwriter|5 years ago|reply
No, it's not, among many other reasons since treating LFPR as if it was unemployment treats, say, a demographic boom reaching retirement age as if it were a mass unemployment event.
Or a long term trend of increasing average years of education as, ceteris paribus, a long term trend of increasing unemployment.
Or a long-term trend of increasing incarceration and forced labor as, ceteris paribus, a long-term trend of increasing unemployment (it's a problem trend, but it's a completely different problem than unemployment.)
And, worst of all, LFPR completely ignores actual unemployment. If no one was employed and everyone was actively looking for work, you would have 100% LFPR even though you had 100% unemployment.
Alternative employment/unemployment measures are important to capture different aspects of the employment landscape, which is why they are collected in the first place—the issue isn't unidimensional. But LFPR is not a better (or even a good, or even, without adjective, a) measure of unemployment.
[+] [-] WarOnPrivacy|5 years ago|reply
Beginning a few years after 2008, came endless news reports of our recovering and robust economy. That was hard to reconcile during times mine/other families were eating nothing but rice (except when we couldn't afford rice).
Huzzah for only reporting from US's wealthiest regions.
[+] [-] syops|5 years ago|reply
I get the sense of surreality.
[+] [-] codeddesign|5 years ago|reply