Earlier we discussed Nate Silver’s well-reasoned argument for why the unemployment rate won’t reach 10%.
He could be correct on that, though we pointed out that he gets there by showing how bad news (people going back to school, joining the Peace Corps, people giving up on job searches) can be good for the unemployment number, because they mean fewer potential workers to count as unemployed.
It’s important not to lose sight of why we’re collecting these numbers, or why we care about them.
It’s not that we really care whether unemployment is 10% (bad) or 4% (good), but rather what those numbers say about the economy we live and breathe in. When unemployment is low it means that people who want to work are able to get out there and support themselves. It means that there’s alignment between the skills demanded by employers, and the skills that potential employees can provide. That’s why it’s a sign of economic health.
When the Fed stress tested the banks to 9.4% unemployment, it wasn’t because they thought some magical switch was set off when the BLS booked a reading of 9.4% unemployment. It was because in the real world, they figured that a level of 9.4% was a meaningful threshold for determing whether bank assets would still be worth enough to keep them solvent. Were unemployment to go much higher, that would mean fewer people paying back mortgages, credit-card bills, etc.
In the Nate Silver post, he calls out his agreement with The New Republic’s Noam Scheiber who notes that as the economy appears to ease, all those discouraged workers will come back to the workforce and make the numbers look good again. Nate Silver rebukes him, noting that historical stats suggest they won’t come back all that fast.
But it just doesn’t matter. It’s not about whether they come back or not. And it’s not about 10% unemployment, which is meaningless. We want to know if the environment is good for finding a job or not, and this debate about who counts as a discouraged worker, and when they will come back doesn’t help answer that question at all.
Remember, neither the person out looking for jobs (this adding to the unemployment number) or sitting at home watching daytime talk shows (not adding to their number) are paying their credit card bill on time.
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