Unemployment Metrics and What Matters Most
Posted by Anthony Gregory on May 6, 2011
Daniel Indiviglio has an interesting piece in the Atlantic on the different methods of measuring unemployment. He asks, “Why did the national unemployment rate rise while 244,000 new jobs were created in April?” He answers by quoting his earlier writing that differentiates between two modes of measurement:
- The household survey includes people on unpaid leave among the employed. The establishment survey does not.
- The household survey is limited to workers 16 years of age and older. The establishment survey is not limited by age.
- The household survey has no duplication of individuals, because individuals are counted only once, even if they hold more than one job. In the establishment survey, employees working at more than one job and thus appearing on more than one payroll are counted separately for each appearance.
- The household survey includes agricultural workers, the self-employed, unpaid family workers, and private household workers among the employed. These groups are excluded from the establishment survey.
The approach to generating the unemployment figure has long been in flux. According to many free-market economists, the actual unemployment number is much higher than what we hear about, and had we been facing today’s economic situation in previous eras, it would easily register in the double digits.
Robert Higgs, however, has argued the opposite: That today people count as unemployed or marginally unemployed who would not have counted this way before, largely because they are written down as having tried to get a job when it’s questionable how hard they actually tried:
“For example, people designated U-3—or officially unemployed—can have taken any number of actions to qualify as having actively sought a job over the past four weeks, including (1) ‘contacting: an employer directly or having a job interview; a public or private employment agency; friends or relatives; a school or university employment center’; (2) ‘sending out resumes or filling out applications’; (3) ‘placing or answering advertisements’; (4) ‘checking union or professional registers’; and (5) ‘some other means of active job search.’
“So, if you are out of work and tell CPS data collectors that three weeks ago you asked Uncle Charlie whether he knew of any jobs, you qualify as officially unemployed. Many of those classified as’ marginally attached workers’ and included in the U-6 measure are even more questionable. After all, they admit they are neither working nor actively searching. Merely saying ‘they want and are available for a job’ but have looked though not in a month, doesn’t show much interest in employment.”
Indeed, according to Higgs, the broader definition of unemployed, a category that today might comprise about 1/6 of the American workforce, would have given us a figure of about 50% during the Great Depression—meaning that as bad as things are now, they are not nearly as dire as they were in the 1930s.
But this is hardly much of a relief for those having trouble finding work, and those who have suffered a setback in real income thanks to the ongoing recession. And given this, both of the modern metrics that Indiviglio discusses do not fully capture the problem.
Also neglected is the number of Americans whose employment is dependent upon government in some significant sense. It is not that these people are not making money and not spending it in the economy; but their employment situation must be understood as being different from those who work in and are paid through the productive private sector. The government “stimulates” the economy partly by subsidizing jobs, directly and indirectly, but how many of these jobs would survive on the free market? Well, almost categorically, most of them would not. That’s why they are subsidized.
This is a crucial distinction. Jobs created by the private sector not only provide a living to those who hold them: they produce wealth for the economy as a whole. Private jobs are a blessing for all of humankind. But government jobs, and jobs that only exist because the government leverages the economy to create such jobs, do not signify wealth-creation for the economy at large. On the contrary, such jobs tend to exist at the expense of the marketplace and the material wealth of civilization. Not only are they financed through taxation—money that would more productively be channeled by the market —but they often perform tasks inimical to a robust economy. A bureaucrat working for a regulatory agency could very well be doing more harm to the economy than if he just stayed at home and got a welfare check. In any event , the more government jobs we have, the more we can expect the economy is not performing up to its potential. Since these jobs are not sustainable on their own, they, unlike private sector jobs, do not point to an ever rosier economic future than we could expect without such jobs.
An example bears this out. During World War II, Franklin Roosevelt oversaw a huge decline in unemployment. But he did this by conscripting about eleven million young men into the U.S. military. Even if economists think this was a good cause, it cannot be mistaken for an actual rise in employment corresponding to economic production. Quite the reverse. It was a sign of massive destruction and a huge imposition on the private economy. The availability of private goods and services and the average American standard of living declined during the war, even as official employment (and GDP) figures rose dramatically. A huge government undertaking like U.S. entry World War II might be favored for other reasons, but it is certainly not “good for the economy,” nor does the impressive climb in jobs figures tell the whole story.
If we had a free market—a true free market—unemployment as we think of it would basically not exist. There are always lots of jobs to do. Labor is in many ways the scarcest resource. Free enterprise will tend to find the clearing price for any good, including the good of labor. The key to eliminating unemployment, and ensuring we have productive jobs that pay as well as is economically feasible and produce as much as possible is to get the government out of the economy as much as we can.
In short, the unemployment figures we see are deceptively high by some standards and deceptively low by others. But what is clear is millions of Americans are having trouble finding jobs, especially desirable jobs, including folks who have gone into significant debt to obtain degrees and credentials. What is clear is the economy has hardly recovered in any real sense since the financial collapse. What is clear is that many of the jobs that do exist are not helping economic recovery, but are hampering it.
