AGAINST GODLESS SOCIALISM
2012-10-05 13:01:13 UTC
It's time to end the unemployment rate shell game
By Jay Schalin
Published October 04, 2012
FoxNews.com
One thing the current economic slump has made painfully clear is that
the unemployment rate is an imperfect tool for gauging the health of
the economy. Washington should replace it with a more meaningful and
useful benchmark: the labor-force participation rate.
The widely publicized unemployment rate, eagerly awaited each month by
pundits and policy wonks, has become little more than a shell game in
which officials keep the public guessing about the real state of the
economy.
Since October 2009, the main unemployment measure has dropped nearly
two percentage points, from 10 percent to 8.1 percent, yet the
economic outlook remains dismal.
Median family income has dropped about 8 percent since the start of
2009; the percentage of recent college graduates who can’t find work
in their fields has skyrocketed, with some estimates as high as 60
percent; even the birthrate has declined, as young people struggle to
get established.
Clearly, the unemployment rate is not telling the full story.
The labor force participation rate – which has fallen significantly,
from 66.1 percent in 2008 to 63.5 percent today – tells us far more.
That’s because it includes everybody of working age, even those who
have left the work force. The unemployment rate excludes such
individuals, presenting a rosier picture than exists.
The most commonly used unemployment measure, known as U-3, is the
percentage of the workforce that is unemployed and actively seeking
work. Using this measure, when people drop out of the labor force they
statistically disappear. The U-3 unemployment rate now hovers just
over 8 percent. If those who have given up and have stopped looking
for work were included, the unemployment rate would exceed 11 percent.
Even the broadest measure of unemployment, U-6, fails to include the
long-term unemployed who have been out of the job market for a year or
more.
The labor force participation rate, on the other hand, measures the
percentage of the working-age population currently holding jobs or
seeking work. Using this measure, when individuals stop looking for
work, they don’t disappear; they remain in the working-age cohort.
Using the participation rate as the benchmark, therefore, would change
policy makers’ incentives, since the only way to improve this measure
would be to increase the percentage of people working or seeking work.
Indeed, the focus on the unemployment rate masks the ineffectiveness
of government “jobs” policies. Politicians can lower the U-3 rate –
and make things seem better than they are – by making it easier for
people to leave the workforce.
And there are many such incentives. The number of people receiving
Social Security disability benefits, for instance, has nearly tripled
since 1993. And unemployment benefits were extended to nearly two
years during the downturn.
Another government policy that has removed large numbers of people
from the workforce is the push to increase college attendance – with
loans, grants, and tax credits. In 1940, roughly 10 percent of the
adult population had attended college; today, a majority of the adult
population has.
While having an educated workforce is generally beneficial, some of
what’s going on – at taxpayer expense – needs to be questioned. Many
schools graduate a third or fewer of their students; frivolous degree
programs abound; academic standards have been lowered. Government
subsidies are driving these trends.
All this idleness hurts the economy, in good times and bad. We need to
keep a reasonably high percentage of the population working to remain
prosperous. In 1940 there were 159 workers for every Social Security
recipient; today there are only 2.8 workers per recipient.
With too few workers to shoulder the heavy burden of government
spending, our debt piles up, and the economy remains in low gear. If
we stay on the current path, the economy will collapse under the
weight of its social and educational programs.
Such grim reality demands a change of perspective.
Focusing on the labor force participation rate provides that change.
If government officials are forced to respond to the declining
percentage of working-age adults who are holding jobs or looking for
work, rather than to the official unemployment rate, they will pursue
policies that increase employment, rather than shrink participation.
That would be a good first step on the road to recovery.
Jay Schalin is director of state policy analysis at the John W. Pope
Center for Higher Education Policy in Raleigh, NC.
http://www.truthandgrace.com/obama.htm
By Jay Schalin
Published October 04, 2012
FoxNews.com
One thing the current economic slump has made painfully clear is that
the unemployment rate is an imperfect tool for gauging the health of
the economy. Washington should replace it with a more meaningful and
useful benchmark: the labor-force participation rate.
The widely publicized unemployment rate, eagerly awaited each month by
pundits and policy wonks, has become little more than a shell game in
which officials keep the public guessing about the real state of the
economy.
Since October 2009, the main unemployment measure has dropped nearly
two percentage points, from 10 percent to 8.1 percent, yet the
economic outlook remains dismal.
Median family income has dropped about 8 percent since the start of
2009; the percentage of recent college graduates who can’t find work
in their fields has skyrocketed, with some estimates as high as 60
percent; even the birthrate has declined, as young people struggle to
get established.
Clearly, the unemployment rate is not telling the full story.
The labor force participation rate – which has fallen significantly,
from 66.1 percent in 2008 to 63.5 percent today – tells us far more.
That’s because it includes everybody of working age, even those who
have left the work force. The unemployment rate excludes such
individuals, presenting a rosier picture than exists.
The most commonly used unemployment measure, known as U-3, is the
percentage of the workforce that is unemployed and actively seeking
work. Using this measure, when people drop out of the labor force they
statistically disappear. The U-3 unemployment rate now hovers just
over 8 percent. If those who have given up and have stopped looking
for work were included, the unemployment rate would exceed 11 percent.
Even the broadest measure of unemployment, U-6, fails to include the
long-term unemployed who have been out of the job market for a year or
more.
The labor force participation rate, on the other hand, measures the
percentage of the working-age population currently holding jobs or
seeking work. Using this measure, when individuals stop looking for
work, they don’t disappear; they remain in the working-age cohort.
Using the participation rate as the benchmark, therefore, would change
policy makers’ incentives, since the only way to improve this measure
would be to increase the percentage of people working or seeking work.
Indeed, the focus on the unemployment rate masks the ineffectiveness
of government “jobs” policies. Politicians can lower the U-3 rate –
and make things seem better than they are – by making it easier for
people to leave the workforce.
And there are many such incentives. The number of people receiving
Social Security disability benefits, for instance, has nearly tripled
since 1993. And unemployment benefits were extended to nearly two
years during the downturn.
Another government policy that has removed large numbers of people
from the workforce is the push to increase college attendance – with
loans, grants, and tax credits. In 1940, roughly 10 percent of the
adult population had attended college; today, a majority of the adult
population has.
While having an educated workforce is generally beneficial, some of
what’s going on – at taxpayer expense – needs to be questioned. Many
schools graduate a third or fewer of their students; frivolous degree
programs abound; academic standards have been lowered. Government
subsidies are driving these trends.
All this idleness hurts the economy, in good times and bad. We need to
keep a reasonably high percentage of the population working to remain
prosperous. In 1940 there were 159 workers for every Social Security
recipient; today there are only 2.8 workers per recipient.
With too few workers to shoulder the heavy burden of government
spending, our debt piles up, and the economy remains in low gear. If
we stay on the current path, the economy will collapse under the
weight of its social and educational programs.
Such grim reality demands a change of perspective.
Focusing on the labor force participation rate provides that change.
If government officials are forced to respond to the declining
percentage of working-age adults who are holding jobs or looking for
work, rather than to the official unemployment rate, they will pursue
policies that increase employment, rather than shrink participation.
That would be a good first step on the road to recovery.
Jay Schalin is director of state policy analysis at the John W. Pope
Center for Higher Education Policy in Raleigh, NC.
http://www.truthandgrace.com/obama.htm