Is the Unemployment Rate Meaningless?
How broken is the unemployment rate? Very, according to some observers.
David Leonhardt, a New York Times columnist argues in his March 5 column that what was wrong with the unemployment rate when it was first measured by Carroll D. Wright in 1878--then a chief of the Massachusetts Bureau of Statistics of Labor with an interest in calming economic "hypochondria"--is what is wrong with the unemployment rate now: Wright strategically excluded segments of the non-working population that would diminish a sunny outlook.
This Friday's release of the January unemployment rate is expected to show an increase from a low 4.9 percent to 5 percent, and according to Leonhardt, "Whatever the survey ends up showing, however, you can be sure of one thing: Politicians will be quick to point out that joblessness remains low by historical standards."
Leonhardt argues that the number of people who fall into the no man's land of the labor market--uncounted unemployed who do not have a job or have not actively looked for work in the prior four weeks--has increased enormously in recent decade. While the unemployment rate was 4 to 5 percent in January, the percentage of adult men not working has risen from 9 percent in 1978 to 13 percent today.
Though these people might be considered "self-unemployed"--retirees, stay-at-home parents, those taking care of aging parents or doing unpaid work--this is probably not the case.
Instead, these nonemployed workers tend to be those who have been left behind by the economic changes of the last generation. Their jobs have been replaced by technology or have gone overseas, and they can no longer find work that pays as well.
West Virginia, with a record-low unemployment rate with but a huge rise in out-of-work men, is considered a great example of where the unemployment rate doesn't paint an accurate picture of the economy. It seems likely that the IT sector--between jobs lost to offshoring and a tremendous number of salaried professionals who settled for contract work after the dot-com bust--could tell a similar story.