Thursday, December 11, 2008

Unemployment - Truth Worse than Even Government Reports

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Today's weekly jobless claims came in at 573,000, well above the cut off of 400,000 level which is usually considered recessionary. The four-week moving average, which is considered more important because it is assumed that the errors in each weekly report will cancel each other out, came in at 540,500. Continuing claims, all the people who are collecting unemployment, reached 4.43 million. Both numbers are the highest level since the deep recession of 1982 when official unemployment reached double digits. The increase in people on the unemployment rolls was the biggest since 1974, another year of major recession and a major bear market.

While no one could argue that these numbers aren't bad news, the truth is actually much worse. Somewhat less than half of the American labor force is eligible for unemployment. This part of the population never shows up in the official numbers cited above. This does not mean however that you can just double all the government figures to get at the true numbers. You would have to assume that the half of the U.S. labor force not eligible for unemployment is equally likely to be unemployed as the half that is and this is certianly not true. On the other hand, it is also certainly true that the ignored half or the labor force does not have an unemployment rate of zero.

The monthly unemployment figures published by the BLS also underestimate unemployment, but do so in a different way. People who are "no longer looking for work" also known as discouraged workers are not counted. The underemployed or people who have worked even a minimal amount part-time are counted as employed. The Labor Department does publish an alternate measure of unemployment, which counts part-time workers who want full-time work, as well as anyone who has looked for work in the last year. This number which still cuts out a number of people indicates that the current U.S. unemployment rate is closer to 13%, not the 6.7% officially reported in last months employment report (almost double, but not quite).

In times of great economic calamity for developed economies, unemployment can reach a quarter of the labor force. It was estimated to be 25% at the bottom of the U.S. Great Depression in the 1930s and almost that same number during the hyperinflationary collapse in Germany in the early 1920s. If the alternative unemployment figures reach 20% or more this time around, it can safely be said that the current economic crisis has gone beyond recession and has become a depression.

NEXT: Herbert Hoover Policy - Working Just as Well Today as in the 1930s

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

1 comment:


Theirs no leverage in the labor market.