Baseball and politics stats-god Nate Silver is getting better at economic analysis. His latest post presents a cogent argument for why unemployment won’t hit 10%:
In order for unemployment to hit 10 per cent, a net of roughly 1 million more people would need to become unemployed, assuming no change in the size of the labour force (which is a big assumption and one we’ll examine in a moment). This almost cetainly won’t happen. Last month, 247,000 jobs were lost according to the payroll survey, and 155,000 more people became unemployed according to the household survey. (What’s the difference between these two numbers? We’ll discuss that too in a bit.) Given that the numbers are improving, it’s hard to see how you can squeeze another million or so job losses of 150-300K per month -– you’d need the employment picture to completely flatline for another 4-5 months, or for what now seems to be a fairly robust trend to actually reverse itself.
Note, however, what I stipulated earlier: assuming no change in the size of the labour force. Ordinarily, about 125,000 additional people each month enter the economy. So it’s not enough merely to break even on the job creation numbers; you have to be slightly into positive territory to avoid seeing the unemployment rate go up as a result of these new job-seekers.
In July, however – as well as in June – the size of the labour force actually declined, according to the household survey. This is what caused the unemployment rate to decline: although the numerator (the number of people who have jobs) in fact slightly decreased, the denominator (the size of the labour force) decreased more, causing the metric to improve. Some of this is because of so-called discouraged workers – people who do not have a job but have given up on looking for one, and (for reasons that I do not entirely agree with) do not meet the Department of labour’s definition of being “unemployed”. This discouraged workers story has been a bit oversold though: U-4, the measure of unemployment that includes discouraged workers, went down too. Most of this, rather, is a matter of people finding somewhat longer-term alternatives to seeking employment: going back to school, early retirement, joining the Army or the Peace Corps, etc. In addition, both legal and illegal immigration are declining, which takes some pressure off the growth of the labour force. There may also be some reversion to the mean, since these metrics are subject to measurement error and since the labour force had supposedly increased by higher-than-usual amounts in April and May. Read the whole thing >
Now, Silver is a Democrat and gets accused of always trying to spin things in Obama’s favour, and he’s kind of doing that now here, though not egregiously. But things like going back to school, entering the peace corps, joining the army and declining immigration are signs of a bad economy. Even if they don’t count as worker discouragement from a government stats perspective, they are, strictly speaking, symptoms of worker discouragement.
So it’s possible that we’ll not hit the 10% number, but the number is pure fiction. What we want to know is whether people who want to work can find jobs — and that isn’t something which the unemployment rate, below or above 10% actually tells us.
This chart shows his projections:
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