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The Good and Bad of the U.S. Federal Unemployment Rate

December 18th, 2015

Sitting in a job club, networking with other job seekers, we were talking about how great the unemployment rate was. This was in 2006, and times were good. Except for the 20 or 30 people in the room.  Newspapers excitedly reported how great the economy was.  And then someone said

“The unemployment rate for me is 100%.”

While the world (at least the newspapers) celebrated such a great economic time, I sate in the room with a couple dozen people who didn’t feel the celebration.  All of us wondered “if it’s so good, why can’t we even get a meaningful interview?”

Why the discrepency?  What is the unemployment rate?

Honestly, I think it’s a bunch of crap. If you want to see why this is such a garbage number, check out The Big Lie: 5.6% Unemployment, an article on Gallup.com.  I’ll highlight some of the article below, but I said I’d share the good of the unemployment rate.

The only good I can think of is that it provides one standard, a metric, that economists can use to track and measure.  That’s it.  It’s been around for a long time, and can be used as one factor to understand what the economy is doing.  Of course, politicians can use this to paint a picture describing how great they are, and how effective their leadership has been.

But this number, with the name it has (unemployment rate), really is a big lie.

Here are some reasons why:

— A low unemployment rate is apparently not good.  Read this and this and this and this, if you want more info on that concept. Again, this number is a number that economists should appreciate, as a metric to track, but the rest of the world (especially the media) should largely ignore (or, understand better). Doesn’t it make sense that the goal is 0% unemployment?  Not according to those links.

— If you are one of the people counted as unemployed, if you don’t find a job after a while, eventually you’ll not be counted as unemployed anymore. Here’s an example: you have a job (not counted as unemployed, right?)… then you lose your job.  Counted as unemployed? Not until you register with the government (think: unemployment insurance).  If you never register your new status, and take welfare, you aren’t counted as unemployed.  If you start your own business, which largely feels like you are unemployed, you are still not counted as unemployed. But let’s say that you get unemployment insurance… yeah! You are now part of the unemployment rate!  But if you can’t find a job, and you run out of welfare (I think this is at 6 months or 12 months, but I could be wrong), you drop off of their roll, and guess what?  As far as the numbers are concerned, you are not unemployed.  Even though you are very unemployed, you are not. So this is only tracking a certain segment of the unemployed.  Supposedly we are tracking those people, but it’s really impossible to track. More info? Research “long term unemployment

– If you work part time, or have a business and make enough so you don’t qualify for unemployment insurance, the government considers you successful enough to be off of their stats.  You are not unemployed anymore, and they celebrate that you have found something.  But that something is typically what we all call “underemployment.” Doing something to get out of the house. Doing something to earn money and try to have dignity, even though it’s not enough. This is such a penalty for some people that they will avoid any type of work or initiative because it jeopardizes their piddly unemployment insurance…. so what should be an incentive to get a real job is actually more like handcuffs.  I know this because I’ve had people tell me they can’t have reportable income until their benefits have run out, or else they will lose their benefits.

Does this disgust you?  Read more at the Gallup site.  And the next time you see this number reported, for better or worse, you’ll know that it doesn’t necessarily mean what the public thinks it means.

 

 

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