Overemphasized Unemployment

By: Mike Chiulli Election Day is approaching faster than Felix Baumgartner's descent to earth.  With two debates down and two to go, it is clear that Obama needed to more convincingly defend his policies in the next debate at Hofstra University in New York. Obama cannot afford any more performances like the one in Denver, and with the setting at an altitude of approximately seventy-two feet, will have to find some new excuses should he underperform.

Luckily, Obama was greeted with surprisingly good post-debate news last week when the jobs report was released.  One may look positively upon his handling of the economy, as unemployment peaked at 10% in October 2009 and has since slowly declined .  However, a long-term problem persists under the surface.  The labor force participation rate (LFPR) has declined since 2000, and is at a 30 year low.  Much of this is attributed to baby boomers entering retirement.  However, young men have also exited the labor force at a higher rate than other demographics.  The long-term trend of people exiting the labor force could pose serious problems with tax revenue and balancing the budget.  While undoubtedly exacerbated by the Great Recession, LFPR has, due to external factors or as a result of policy, also plunged under Obama.

The widespread usage of unemployment as the definitive statistic of the labor market is misleading.  It tells only a part of the story.  This oversimplification, however, is not likely to be fixed.  Other potentially useful indicators besides the unemployment rate and the LFPR are median number of weeks unemployed, unemployment rate plus number of discouraged workers, or percentage of workers with "good jobs."  Discouraged workers are workers who have stopped looking for employment and are thus excluded from the unemployment rate. Unemployment rate portrays a more favorable picture than the reality of the situation.  The good jobs percentage gives a measure of quality to employment, besides the measures of quantity given by other usual indicators.  While these measurements may have relevance within the policy-making sphere, they are largely foreign language to the public.  Although a variety of indicators that tell a fuller story is preferable, we must live with the insufficient economic indicator that is the unemployment rate.

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