Thursday, September 26, 2013

U6 Watch: August 2013

U6 Watch is a monthly feature monitoring the poverty-sustaining compromise of Democrats and Republicans to use the U3 measure of unemployment to obscure the reality of the labor market. Read the first U6 Watch for more background. U6 Watch also highlights other "recovery" and labor market news. All U6 Watches can be found using the U6 Watch tag.

I started U6 Watch back in July in response to the June BLS jobs report. In that jobs report, the most widely-reported measure of unemployment--the U3--fell--while the more accurate U6 unemployment rate increased. Since the U6 is a far more accurate measure of workforce underutilization than the U3, the positive press surrounding the "drop" in unemployment was smoke and mirrors; the situation had actually gotten worse, not better. Since the U3 was misleading while the U6 was not, I named the feature U6 Watch. However, had I started this month, I might have called it something different--for, this month, U3 and U6 are both misleading.

U3 unemployment fell from 7.4% in July to 7.3% in August; U6 unemployment rate fell 14.0% to 13.7%. This certainly sounds encouraging.

Unfortunately, the number of employed persons decreased from 144,285,000 to 144,270,000 (because it's a survey, BLS rounds to the nearest 1,000). The number of people working as a percentage of population fell from 58.7% to 58.6%. The labor force participation rate fell from 63.4% to 63.2%.

Once again, the numerator of the U3 and the U6 only count someone as unemployed if they are actively looking for work. If people stop looking for work (because they give up their job search or retire), the unemployment rate will fall, even if the employment situation hasn't changed. That is exactly what happened this month. Both U3 and U6 are used to report that the situation is getting better--that fewer people are unemployed. In fact, both measures fell only because people left the labor force. People didn't find jobs--fewer people are working this month than they were last month.

It's true that jobs reports are almost always inaccurate, and this one will almost certainly be revised--perhaps reversing these conclusions. Nevertheless, any attempt to make these numbers tell a positive story is an outright lie--and that's the key point. A essential feature of poverty sustainment (policies designed to keep people poor) is obscuring the reality of the situation. This is clearly what both U3 and U6 unemployment rates have done this month--they paint a rosy picture when things are--at best--not getting worse.

Now, BLS statistics suggest that the fall in the labor force participation rate was mainly due to people retiring. While that's better than the alternative--people giving up on their job search--this is no consolation whatsoever to the unemployed, since the data argue that we are losing jobs, not creating them.

On to other labor market news.

I forgot to put this in the July U6 watch: per the Bureau of Labor Statistics, job postings increased in June, but hiring fell. Sure, there's a lot of job postings up, but that doesn't mean employers are actually hiring. Remember that before you poke an unemployed person.

U6 Watch is about to go from bad to worse:

Piketty & Saez released their updated study on US inequality based on preliminary numbers. For the first time ever (or at least since the statistic was first tracked in 1913), the richest 10% are taking home over half of the nation's income. The richest 1% are taking home 22.5% of all American income. Chart from Annie Lowrey:

In reality, this is misleading; the richest 10% only appear to do so well because of the richest 1%, who have captured 95% of all income increases since 2009:


Think about how amazing that is. For every dollar of pay raises since 2009 (when the economy was in "recovery"), 95 cents went to the richest 1%. Have you gotten a pay raise since 2009?

I wish Piketty & Saez would use post-transfer data; by ignoring taxes, they're really opening themselves up for criticism. Nevertheless, it should be abundantly clear that some people are getting raises, and unless you're in the 1%, it ain't you.

Finally, neither the U3 nor the U6 capture another form of labor force underutilization: people working jobs they are overqualified for. This month, I'll discuss the grim situation of recent college graduates; next month, that of recent high school graduates.

There is no question that recent college graduates are working jobs they are overqualified for:
These student sentiments echo findings from a recent analysis from the US Bureau of Labor Statistics (BLS) which showed that 48 percent of emlpoyed US college graduates are in jobs that require less than a four-year college education (indeed, more than 15 percent of taxi drivers and firefighters have a college degree today; only 1 to 2 percent had one in 1970)...the cliché of the overeducated waiter or limousine driver seems to have some support.
Those overeducated taxi drivers? Those guys are lucky:
About 1.5 million, or 53.6 percent, of bachelor's degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years. In 2000, the share was at a low of 41 percent, before the dot-com bust erased job gains for college graduates in the telecommunications and IT fields.
Unsurprisingly--with high unemployment and underemployment--1 in 5 recent college graduates isn't able to make payments their student loans. Given the power to collectors have to get payments, it's clear that these delinquents are in truly desperate financial situations.

Matthew Tiabbi's recent article about the disgrace of the US student loan system is well worth reading in full. An older, must-read piece from Tim Donovan provides much-needed background. He exposes the methodological flaws of studies purporting to show that college is worth it, despite the mammoth cost and burden student loan debt. Key quote:
Unfortunately, the Census Bureau report and the study mentioned by Wonkblog employ the same flawed methodology, simplistic techniques that were originally used as far back as the mid-’70s. Essentially, the study’s authors look at the average income of individuals aged 18 through 64 who hold college degrees versus those with only high school diplomas, and compare each year separately. Simply subtract the high school earners’ income from the college graduates’, add up the remainders, and voil√†, you now have the future earnings of anyone graduating college today… assuming, I suppose, that college graduates plan on living their entire lives in 2013, Phil Connors-style.
Assuming the experiences of 64-year-olds in 2013 accurately predict the future of the 22-year-old graduating today is lunacy; yet, amazingly, this is the least of the methodological flaws of studies trumpeting the benefits of college. I highly recommend reading the rest of the Donovan's article.

When people are working jobs they are overqualified for, their valuable skills are unused. Unused, these skills decay until they are lost. This is a phenomenal waste--not only for affected individuals--but to our entire economy. By not addressing this unemployment crisis, we are throwing away our future in order to maintain inequality.

Because the implications of the student loan debt debacle are so important, I devoted a separate post to it. You can find it here.

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