TAKING STOCK: Unemployment

Dear Mr. Berko:

I'm a student in my senior year at the University of North Carolina, where I read your column. Looking at the latest numbers issued by the Federal Reserve, I can't figure out whether unemployment is rising or it's falling. How is it possible for the unemployment percentage to decline when the number of unemployed workers increases? Could you explain the Fed's unemployment percentages, such as U-1, which is supposed to be 5.4 percent, U-2, at 5.8 percent, U-3, at 7.8 percent, U-4, at 8.7 percent, U-5, at 9.8 percent, and U-6, which is 14.7 percent? What do you think the real unemployment numbers are? And finally, do you think this falling stock market is predicting a recession?

ABC, Chapel Hill, N.C.

Dear ABC:

The stock market has been successful in predicting eight of the past four recessions. Ask someone else to do your homework, but read on, because you and your professors will learn something.

Economists, like politicians, enjoy such high opinions of themselves that there is no room in their conscience to imagine the existence of a supreme being. The significant difference between the professions is that one of them allows its members to take extravagant sums of tax-free money from corporations, private interest groups and prominent citizens. Though lying is a sacrament for most politicians, it's difficult to know whether an economist is telling the truth, because few folks understand what economists say. It's little wonder that most Americans have a high degree of animus for both professions.

If you want to know who is unemployed, ask someone who is unemployed. No one at the Fed has ever been unemployed, so listening to the Fed about the unemployment rate is like listening to Cornelius Vanderbilt lecture the masses on comparison shopping. I'm certain the Fed employs trained monkeys to pull the U-1 through U-6 concepts from a 10-gallon Stetson, allowing Chairman Ben Bernanke and the Obama administration wiggle room to change horses in midstream. This U-1 through U-6 stuff is specious; its application is ridiculous; and literate people can find the definitions on the Internet.

"Unemployment" is a negative term, like "the glass is half empty." Sadly, our print media, TV and radio news programs thrive on negativity, which has become a national pastime. Rather, let's focus on "employment," which is a positive term. The better measure of a strong labor market is the proportion of the population that is working, not the proportion of the population that is not working.

At year's end 2007 (before the economy collapsed), 63.6 percent of the working-age population was employed. This number declined to 58.2 percent by year's end 2011, and today this number, according to the Bureau of Labor Statistics, is 58.6 percent. This number has barely changed in the past 21 months and defines the failure of our economic policies since 2007. New jobs are always created; old jobs are always destroyed. (Read Joseph Schumpeter.) The net number of jobs has actually increased since the recession bottomed, but so has the size of the working population. And though the unemployment rate has declined, the percentage of the population that is working has remained at 58.6. So current job growth rate is just enough to keep 58.6 percent of the working-age population employed but not enough to get back the jobs lost during the Great Recession.

If truth could be told, today's job market is in terrible shape. Despite falling unemployment rates, the number of new hires today (4.3 million) is the same as it was in January 2009. The fact is simple: More people are unemployed today than were at the slowest period of the recession. This growing number of unemployed won't accept lower-paying jobs in the health care, fast-food, clerical, retail and maintenance fields. So they have stopped actively looking for work, and because they're not included as participants in the workforce, the unemployment rate declines. This is a Catch-44, which is twice as bad as a Catch-22. Why should workers accept lower-paying jobs in lieu of government benefits such as unemployment insurance, food stamps and disability insurance? The question is, How much longer can this continue?


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

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Published: Mon, Jul 22, 2013