Tuesday, July 30, 2013

U6 Watch: June 2013

Update (8/1/2013): There was a problem with the image I used for the labor force participation rate graph.  Put in a different graph.
Image: A Google image search for "unemployment" found this cartoon (source)

Both political parties have an cynical, poverty-sustaining compromise on the economy.

Both have agreed to use the U3 measure of unemployment in measuring the performance of the economy.  However, this measure makes no sense whatsoever; for June, U3 unemployment rate stayed steady at 7.6%, making it appear that things aren't getting worse.  They are.

The U3 measure divides:

(number of people actively searching for work) / (number people who are working + number of people actively searching for work)

Notice what the U3 measure conveniently leaves out:

  1. People who have had no luck with their job search for so long that they have given up looking
  2. People who would like to be working full time but can only find part time work
  3. People who have retired early because of the horrible job situation
  4. People making less money than they should
  5. People working below their training (people with Master's degrees waiting tables)
There's no question that #1 and #2 are enormous, widespread problems.  The U6 measure includes the U3 measure, plus #1 and #2, which the U3 leaves out.  While the U3 remained the same in May--implying that things haven't gotten worse--U6 unemployment actually increased from 13.8% in May to 14.3% in June.  That corresponds to an increase of 757,000 people, or 22.6 million total unemployed, discouraged, or forced to work part time.  This is a mammoth waste of human potential and comes closer to telling the full story: things are very, very bad, and are getting even worse.

The U6 is just as convenient as a sound-bite as the U3; when politicians reach for a sound-bite, it's telling that they reach for the U3.

Regarding #3, watch in horror as the labor force participation rate--the number of people working or who want to be working--falls precipitously since the Great Recession, and stays down during our "recovery":

Now, Baby Boomers are approaching retirement age, so much of this could be boomer retiring as planned.  But Dylan Matthews at Wonkblog summarized evidence that demographics explains only 20-25% of the drop in labor force participation rate.

Regarding #4, I've already discussed (recovery going according to plan) the fact recession primarily axed middle income jobs; the "recovery" has largely replaced those middle wage jobs with low wage jobs:

Regarding #5, one study estimated that half of American workers with bachelor's degrees are working in a field they are overqualified for.

Finally, it's worth repeating: there are still more than three job seekers for every job opening; the number of job seekers greatly outnumbers job openings in every sector of employment, so getting job training to switch fields is not an option.

All this--massive joblessness, people working part time when they want to be working full time, early retirement, huge swaths of our labor force underpaid and overqualified--is a massive waste of human potential.  Think of how much stronger our economy could be if all these people were able to properly apply their skills and training.

So, the U6, while failing to capture much of the misery of the "recovery," does a far better job than the U3.  Yet Republicans and Democrats seem to have an uneasy compromise, where--with few exceptions--they only talk about the U3.

The public generally sees this economy as the Democrat's economy, and Democrats apparently doubt their ability to get the public to recognize Republican obstructionism, so their motive for using the U3 rather than the U6 is obvious.  No one wants to take credit for a worsening economy.  But Republicans don't want to use the U6 either, because acknowledging the extent of the problem might actually get the public to recognize Republican obstructionism.  The result would likely be pressure to pass Obama's American Jobs Act:
The plan included stimulus spending in the form of immediate infrastructure investments, tax credits for working Americans and employers to encourage consumer spending and job growth, and efforts to shore up state and local budgets to prevent further layoffs of teachers, firefighters, police officers, and other public safety officials.

The American Jobs Act never became law, however, because Republicans opposed it from the start, blasting it as another form of “failed stimulus” that wouldn’t help the economy. (They ignored the fact that the first “failed stimulus,” the American Recovery and Reinvestment Act, wasn’t a failure at all.) One month later, the GOP blocked the bill in the Senate, preventing the creation of more than a million jobs and the added growth that multiple economists predicted would occur if the bill passed...
Naturally, a stimulus would undercut Republican goals, and they wouldn't want to give Obama's plan credit with creating millions of jobs.  So, Republicans are content with using the U3, because too much attention to the U6 could lead to the American Jobs Act.

This compromise has given us the JOBS Act, passed in April 2012, which, as Matthew Tiabbi explains, legalizes again the types of fraud that caused the dot com bubble to inflate, then burst, triggering the 2001 recession.  Yes, that's D.C.'s version of a jobs bill: help create another recession.

Tellingly, organized labor vehemently opposed the JOBS Act, because it's not a jobs act as much as one that legalizes fraud.  This post earns the tag "liberal Democrat myth" because a liberal president would not have signed a bill legalizing fraud, and would not have done this:
The JOBS Act -- short for Jumpstart Our Business Start-Ups Act -- was birthed in late-January by Obama's Council on Jobs and Competitiveness, a group whose membership provides some insight into the administration's loyalties and priorities.

Of the two slots Obama awarded to labor unions on the 27-seat council, one was filled by AFL-CIO President Richard Trumka. The 19 corporate executives included the heads of GE, Intel, Citigroup, Xerox, Boeing and American Express. Investment managers, lawyers and academics make up the remainder.
That is poverty sustainment.  That is what focus on the U3 has gotten us: a "job creation" law that simply legalizes the fraud that caused the 2001 recession, and an increasing marginalization of organized labor.  It's difficult to see how marginalizing organized labor isn't a goal of the Obama Administration; they'll take labor's campaign contributions, but, at some point, actions speak louder than words.

Whatever the reason, the focus on the U3 measure is one of poverty sustainment.  If politicians can keep the public from knowing just how bad the problem is--and the fact that it's getting worse--then there won't be any need for a policy change.

U6 watch will be a monthly feature to follow the U6 unemployment rate.  June data is released in a few days.

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