Reality check: Unemployment rate "drops" to 8.6%. Good news, or bad?
Friday, December 2, 2011 at 12:31PM According to major news reports, the unemployment rate has dropped from 9.0% to 8.6%
This is great news, right? Well, not really, and I will explain why.
First, the unemployment rate measures people who are without any employment (including part-time), who are *actively looking for work. *So, if you are unemployed, and give up looking for work, you are no longer part of the "unemployment rate."
Here is where the important part of the Washington Post article comes into play:
"The jobless rate fell to 8.6 percent last month, from 9 percent in October, the lowest level since the economic free-fall of March 2009, the Labor Department reported Friday morning. But the improvement in the job market was not quite as strong as that drop would suggest: *About half the decline was attributed to people dropping out of the labor force, no longer counting themselves as even looking for work." (emphasis mine)* * *
What we have here is not so much the generation of new jobs to absorb unemployed job-seekers, we have a general contraction of the labor force as people simply give up looking because so few new jobs are actually being created. This is a tragic loss economically, not only to the people out of work, and the economic and social disruption that unemployment causes, but to the nation in general - we have so much creative talent and productive capacity laying idle, the loss is tragic.
Steps to recovery:
1. Admit you have a problem, and begin accurately measuring it. A reasonably accurate unemployment rate would take into account: people unemployed who are actively seeking work, people under-employed (laid off and took a lower paying full time job or a part-time job), and the discouraged unemployed (have given up looking for work).
2. Protect the economic status of the laid off through unemployment insurance. Why? Once you sink into poverty, it is very hard to get of poverty. At the macroeconomic level , this keeps more people at a higher level of economic consumption.
3. Engage in value-added public works programs - schools, roads, bridges, dams, conservation projects, inner city revitalization, etc - so that when the economy ticks upward, there will be infrastructure to support growth.
