Unemployment:
Issues & Concerns
Dr. D. Foster – ECO 285
Unemployment rate – 6 degrees of separation
So, then, what exactly is the Ur?
But, the
various series
do move
together. So,
while we can’t
say what Ur
is, we seem to
be able to say
whether it is
going up or
going down.
Current data on the six U’s (January 2016)
Shadow stats – add in long term
discouraged workers with U-6…
1/2016
22.9%
But … what exactly is a “discouraged” worker?
Moral Hazard & unemployment insurance.
Moral Hazard: One party to a contract changes their
behavior that adversely affects the other party.
Examples:
• Ben Roethlisberger signs a big contract and then
rides a motorcycle without a helmet.
• A bank makes a home loan to someone working
who then quits.
• AIG buys lots of sub-prime home loans because they
know that they are “too big to fail.”
• Depositors flock to Lincoln S&L to earn high rates of
interest on sketchy loans because of the FDIC.
Moral Hazard & unemployment insurance.
• UI benefits had been limited to 26 weeks.
• Benefits extended 2008-2009 to 99 weeks.
• San Francisco Fed chart showing % of labor force
unemployed for 6 months or longer:
• Big jump in long
term Ur with
this extension.
• Moral hazard?
• 2014 – efforts
to extend by 3
months fails.
Moral Hazard (con’t.)
1/2016
27.6 wks.
The CBO (Congressional Budget Office)
CBO estimates that extending emergency
unemployment benefits would … increase … the
duration of unemployment for some people.
Specifically, in response to the extension of benefits,
some unemployed workers who would be eligible for
those benefits would reduce the intensity of their job
search and remain unemployed longer—which
would tend to decrease output and employment.
A tale of 2 surveys – can’t we just all get along?
• Household survey – 60,000 HH per month, yields Ur.
• Payroll survey – 390,000 firms per month, yields
jobs.
• BLS adjusts the HH survey to “better match” payroll
data.
• But, Ur is most widely watched indicator.
• Issue: Ur is too discretionary & unreliable:
• “affected by assumptions regarding the character,
motives or incentives facing the unemployed.”
• Furor “over the extension of unemployment benefits …
has derailed discussion of policies aimed at direct job
creation.”
Jan-2016
< 5 weeks
29.0%
5-14 weeks 29.4%
15-26 weeks 14.6%
>27 weeks 26.9%
< 5 weeks
> 26 weeks
5-14 weeks
15-26 weeks
Looking at “employment”, 2000-2016
149
146
From Jan. 2007 to Jan. 2016, jobs are up 3 million
… but population is up 23 million!!!
Average Growth = 0.23% per year!!!
The Labor Force Participation Rate
= (#Labor Force)/(#Civilian Population)
1/2016
62.7%
Age and LFPR 1948-2013
Male/Female LFPR 1948-2013
BLS forecast for LFPR to 2022
Unemployment & the LFPR
Interpreting the Ur rate.
• It understates unemployment
• Disguises underemployment.
• Discounts discouraged workers.
• It discounts other marginally attached workers.
• It overstates unemployment
• Includes moral hazard effect to collect benefits.
• Based on HH survey versus payroll survey.
• Builds in assumptions about motivation.
• Even with adjustments, est. rate from 3% to 22%!!!
Unemployment:
Issues & Concerns
Dr. D. Foster – ECO 285