Real Unemployment
In our latest podcast at the time of this writing (2nd July 2009), we professed that real unemployment, as opposed to the government announced 9.5%, is really 15%. We professed that to the government number of 9.5% of the population which is actively looking for jobs and is unemployed, we should add the following- The homeless, who are really worse off than those who are in homes but unemployed.
- The home-makers, who are sometimes forced not to work, whether it be the economy (as it is right now), or whether it be the family circumstances (sometimes, the husband does not want the wife to work); who, given a choice, would love to work.
- Those males predominantly from the minority groups who are not "looking for jobs" because they are in prison!
- Those who have long since stopped drawing unemployment (for one of the criteria to draw unemployment is that you have to send in a list of companies you applied to at regular intervals like every two weeks), and are too dejected to look for jobs, but are still unemployed.
But don't take our word for it. Let's look at this official chart (this pie chart depicts the employment situation at the end of the first quarter, or end of March 2009) from the U.S. Bureau of Labor Statistics (BLS) to see how the government calculates the official unemployment rate.
Some of the four categories of people we added to the official 9.5% rate to come up with our 15% rate are included in the marginally attached workers group of 2.1 million, as per the above official chart, and some (like the homeless and those who are in jail) are not. The government will calculate the unemployment numbers as follows:
Unemployment Rate = (# unemployed) / (total # in the labor force) = 13.5 / (13.5 + 140.1 + 2.1) = 13.5 / 155.7 = 8.67% (this is close to the official number of 8.5% unemployed at the end March, 2009 as announced by the BLS)
However, the government admits that there are 2.1 million marginally attached to the workforce. Look at the chart above again, they include the discouraged workers. The BLS includes in the marginally attached groups like the home-makers, who would go back to work as soon as they are ready but are currently not working because of a family situation or what have you. We contend that they would all work in this given bad economy if they could, but since they can't find work, they have become "home-makers." Traditionally, a lot of women used to be "home-makers." But now, a lot of men are, since their wives work, and they can't. Frequently, when wives work but husbands don't, it creates a different kind of family dynamics, which is not wholesome psychologically for the micro-unit (the family) or for the larger community and the society, but that is beyond the scope of this concept write-up. This 2.1 million does not include the homeless, which by some estimates, are at 3 to 5 million. In any case, let's put the conservative number to be 3 million homeless. Excluding the unfortunate citizens who are serving prison-terms, we have 2.1 + 3 = 5.1 million who are marginally attached.
So, the Real Unemployment Rate = (13.5 + 5.1) / (13.5 + 140.1 + 5.1) = 18.6 / 158.7 = 11.7% at the end of the first quarter (or end of March)
Now, at the end of May, the official rate jumped to 9.4%. If we use the same rate of increase for the Real Unemployment Rate, we come to
11.7 * 9.4 / 8.7 = 12.65%
So, we know for a fact that unemployment at the end of May was 12.65%.
But this is not the whole story. Because the banks decimated the 401K's of lots of baby boomers and others who would have retired (and thus fallen into the bucket of 79.2 million who are not in the labor force as per the government, but who actually are looking for work, since their retirement savings got annihilated), the actual full time unemployed is 15%, and rising. In fact, if you include those who are working part time because they don't have full time work, you can come to a figure of 20% who are unemployed.
No wonder, if you ask the man on the street, they say that whatever the government says, just double it. In other words, if the government comes up with a figure of 9.6% unemployed by the month of June, double it to come up with 19.2%. And the man on the street, looking for work is right.
More seriously though, why does the government not state that 15% of America is fully unemployed? Why does it say that only 9.4% is? Is it because that would cause a panic in the markets (stock, bond, oil, gold)? Will it make us look bad as the biggest, brightest, and smartest nation on the planet? Will it upset the status quo, where the Goldman banker takes the tax dollars directly (as in TARP) and indirectly (through AIG) and pays himself a million dollar salary even as the average American who worked HARD all his life and now finds his whole retirement portfolio decimated thanks to the reckless "toxy-moronic" behavior of the Goldman (and Morgan Stanley and Citi) banker has to (but can't, because jobs are not easily available) enter the labor force again, when he should have enjoyed his "golden" years?
As per estimates, this official figure of 9.4% will go up to 12% by end of 2010, as per many economists, including Roubini. Which means what? The real / actual unemployment rate will go up from its current 15% to 15 / 9.4 * 12 = 19.14%, or almost 20%. In less than 2 years, 1 in 5 Americans will be fully (not partially) unemployed! And the number will approach (and exceed) the figure of 25% of people who were unemployed during the Great Depression, if we include the partially employed at that point of time! We at FRANCONOMICS.COM are scared. Are you?
Unemployment Rate = (# unemployed) / (total # in the labor force) = 13.5 / (13.5 + 140.1 + 2.1) = 13.5 / 155.7 = 8.67% (this is close to the official number of 8.5% unemployed at the end March, 2009 as announced by the BLS)
However, the government admits that there are 2.1 million marginally attached to the workforce. Look at the chart above again, they include the discouraged workers. The BLS includes in the marginally attached groups like the home-makers, who would go back to work as soon as they are ready but are currently not working because of a family situation or what have you. We contend that they would all work in this given bad economy if they could, but since they can't find work, they have become "home-makers." Traditionally, a lot of women used to be "home-makers." But now, a lot of men are, since their wives work, and they can't. Frequently, when wives work but husbands don't, it creates a different kind of family dynamics, which is not wholesome psychologically for the micro-unit (the family) or for the larger community and the society, but that is beyond the scope of this concept write-up. This 2.1 million does not include the homeless, which by some estimates, are at 3 to 5 million. In any case, let's put the conservative number to be 3 million homeless. Excluding the unfortunate citizens who are serving prison-terms, we have 2.1 + 3 = 5.1 million who are marginally attached.
So, the Real Unemployment Rate = (13.5 + 5.1) / (13.5 + 140.1 + 5.1) = 18.6 / 158.7 = 11.7% at the end of the first quarter (or end of March)
Now, at the end of May, the official rate jumped to 9.4%. If we use the same rate of increase for the Real Unemployment Rate, we come to
11.7 * 9.4 / 8.7 = 12.65%
So, we know for a fact that unemployment at the end of May was 12.65%.
But this is not the whole story. Because the banks decimated the 401K's of lots of baby boomers and others who would have retired (and thus fallen into the bucket of 79.2 million who are not in the labor force as per the government, but who actually are looking for work, since their retirement savings got annihilated), the actual full time unemployed is 15%, and rising. In fact, if you include those who are working part time because they don't have full time work, you can come to a figure of 20% who are unemployed.
No wonder, if you ask the man on the street, they say that whatever the government says, just double it. In other words, if the government comes up with a figure of 9.6% unemployed by the month of June, double it to come up with 19.2%. And the man on the street, looking for work is right.
More seriously though, why does the government not state that 15% of America is fully unemployed? Why does it say that only 9.4% is? Is it because that would cause a panic in the markets (stock, bond, oil, gold)? Will it make us look bad as the biggest, brightest, and smartest nation on the planet? Will it upset the status quo, where the Goldman banker takes the tax dollars directly (as in TARP) and indirectly (through AIG) and pays himself a million dollar salary even as the average American who worked HARD all his life and now finds his whole retirement portfolio decimated thanks to the reckless "toxy-moronic" behavior of the Goldman (and Morgan Stanley and Citi) banker has to (but can't, because jobs are not easily available) enter the labor force again, when he should have enjoyed his "golden" years?
As per estimates, this official figure of 9.4% will go up to 12% by end of 2010, as per many economists, including Roubini. Which means what? The real / actual unemployment rate will go up from its current 15% to 15 / 9.4 * 12 = 19.14%, or almost 20%. In less than 2 years, 1 in 5 Americans will be fully (not partially) unemployed! And the number will approach (and exceed) the figure of 25% of people who were unemployed during the Great Depression, if we include the partially employed at that point of time! We at FRANCONOMICS.COM are scared. Are you?
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