Saturday, January 21, 2012

 

Lower Unemployment Rates Not Necessarily a Good Thing

Yesterday, Ohio announced its unemployment rate fell to 8.1% in December, down from 8.4% in November. Ohio's unemployment rate stood at 9.0% in October. A fall of nearly 1 percentage point in two months seems quite remarkable and great news. Remarkable, maybe. Great news, no.

Ohio's unemployment rate fell drastically because the work force fell drastically.
Ohio’s unemployment rate eased in December, but the number of employed Ohioans actually dropped from the previous month, the state reported Friday.
......
About 469,000 people in Ohio were unemployed and looking for work in December, down from 496,000 in November, the department said. But the state estimates it has about 5.1 million employed workers, down about 3,300 from November. The largest job losses occurred in the professional and business services sector, which lost 4,700 workers last month, the state said.
Discouraged workers no longer looking for jobs aren’t counted as part of the work force, meaning the unemployment rate can drop even as the state sheds jobs.

About 26,000 fewer people were actively looking for work in December, helping deflate the state’s unemployment rate,...

The same thing is happening on a national level.
The Associated Press reports that, “more than 300,000 people stopped their job searches last month [November, 2011] and were no longer counted as unemployed. That contributed to the drop in the unemployment rate. The rate could rise in future months if they resume looking.”
......
“If labor force size was same as Oct., U-3 [i.e., core] unemployment rate would [now] be 8.9%; [if labor force size was] same as when Obama took office, [then U-3 unemployment would be] 11%.”
Eleven percent unemployment would be staggering. The only reason it appears to be 8.6% is because the workforce has contracted.

Some think the lowering of unemployment by depleting the work force is part of Obama's re-election strategy.
It won't surprise anyone that as of December, the real implied unemployment rate was 11.4% - basically where it has been ever since 2009 - and at 2.9% delta to reported, represents the widest divergence to reported data since the early 1980s. And because we know this will be the next question,

No doubt Obama will tout lower unemployment figures as an accomplishment of his whether or not it's attained via a smaller work force or not. I hope he's not so cynical (or stupid) that he would have plan to make this happen. But, then again, I've rarely been disappointed underestimating others.

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