# Is a good vs. bad economy based on the unemployment rate really determined by 5% of the population? **URL:** \ **Category:** Factual Questions\ **Created:** [June 7, 2011, 4:22pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629 "2011-06-07T16:22:53Z")\ **Posts on this page:** 19\ **Page:** 1
**Author:** ![Hampshire](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hampshire/32/4887_2.png) [@Hampshire](https://boards.straightdope.com/u/Hampshire)\ **Post date:** [June 7, 2011, 4:22pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/1 "2011-06-07T16:22:53Z")
So during properous times the unemployment rate hovers around 5%. During not-so-great economic times we approach 10%. Is the economy so fickle that whether a scant 5% of us is working or not determines good vs. bad economic times? ---
**Author:** ![Leaffan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/leaffan/32/299_2.png) [@Leaffan](https://boards.straightdope.com/u/Leaffan)\ **Post date:** [June 7, 2011, 4:38pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/2 "2011-06-07T16:38:41Z")
I’ve also pondered this. All I know is that when the unemployment rate in my city was reported to be 9% I couldn’t even get an interview. The rate is now at 6%. A three percent drop means an additional 21,000 people working. That’s a lot of competition for a job. ---
**Author:** ![lazybratsche](https://avatars.discourse-cdn.com/v4/letter/l/ba8739/32.png) [@lazybratsche](https://boards.straightdope.com/u/lazybratsche)\ **Post date:** [June 7, 2011, 4:44pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/3 "2011-06-07T16:44:49Z")
The official unemployment rate is just one indicator of the economy. There’s also underemployment to consider\*, which is estimated at around 5-10% when the economy is strong, but is now 15-20%. And then the people who manage to stay employed are often facing harder times as well – they’re not getting raises to keep pace with inflation, or they have their hours cut, or their facing a greater chance of losing their job. So a lot more than 5% of the country is hurting. Those are some of the worst off, but a much larger portion of the country is hurting in some way. \*the people who just manage to make ends meet with part-time jobs, low-paying jobs, or give up finding employment, perhaps to stay home taking care of family, or retiring earlier than they’d like… ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [June 7, 2011, 4:45pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/4 "2011-06-07T16:45:10Z")
Unemployment only takes into consideration certain types of people - those who were involuntarily released and still eligible for benefits. Let’s not forget that plenty of the people still listed as employed are working 20 hours instead of 30 or are getting $1,000 in sales commissions instead of $5,000. Washington state plans to cut teacher salaries by 3% to avoid layoffs. Let’s also not forget that plenty of people have opted for early retirement rather than try to find a new job. They’re not counted as unemployed, but they are certainly not receiving the same income. And then, those who are still employed change their buying habits. They put off new cars and vacations because they’re not sure if they’ll have a job six months or a year from now. So… yes, a 5% shift in unemployment is pretty significant, but the significance can’t be fully understood by looking at that number alone. ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [June 7, 2011, 4:48pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/5 "2011-06-07T16:48:13Z")
There is always a percentage of workers who are in job transition, be it voluntary or involuntary. That transition factor has been categorized for years as five percent unemployment. When the unemployment rate falls below five percent in a particular geographic area, that area is experiencing more jobs openings available than what can be filled by the local population. ---
**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\ **Post date:** [June 7, 2011, 4:51pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/6 "2011-06-07T16:51:49Z")
> [@Hampshire](#): > > So during properous times the unemployment rate hovers around 5%. During not-so-great economic times we approach 10%. > Is the economy so fickle that whether a scant 5% of us is working or not determines good vs. bad economic times? Actually, there are different measures for how well the economy is doing, and because they measure different things, they come with problems. Very common is the Gross National Product, and similar other measures. The problem with that is that it only looks (simpliefied) at the amount of money (goods) produced, not at the amount of jobs, or quality of them. For decades it was firm belief in economic circles that booming economy = lots of jobs, recession = loss of jobs, because of how things were in the 30s and after WWII. Problem is, with globalization and the big finance sector, the economy can also boom by manufacturing cheap plastic in China and selling it at Walmart, while people have no real jobs. A company can make a profit on the quarterly reports by selling stuff or by downsizing. Wall street and Co. can make money just by trading without creating any useful jobs for all those unemployed. 5% for good economy I would still consider high. There will always, however, be a certain rest at the bottom of the barrel of people who can’t find a job because of lack of education; their personality/ character; other problems like raising children or nursing sick family members; hate to work and prefer to live on the dole (a tiny segment) etc. But when able-bodied, willing, educated people apply for 300 jobs and can’t find anything (did you read about McDonalds offering 50 000 jobs and 1 mio. people applied? For a shitty job like that?) - then the economy and the country has a problem.[Here is a good essay](http://www.patheos.com/community/slacktivist/2011/06/06/making-work/)explaining once again how it costs the state more money to have good people unemployed than create work projects. ---
**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\ **Post date:** [June 7, 2011, 4:54pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/7 "2011-06-07T16:54:32Z")
Oh, wanted to add: total number of jobs alone is not a good measurement. As lazybratsche and Duckster point out, you should only count full-time jobs or part-time that people are happy in, that fulfill them and make the most use of their talents and education and that pay enough to live on. But a lot of jobs in the official statistic are part-time jobs, MacJobs, shitty jobs where people would flee if there was anything else open (and are a waste of talent), working-poor-jobs of the two-and-three-jobs to make ends meet variety … ---
**Author:** ![Rigamarole](https://avatars.discourse-cdn.com/v4/letter/r/77aa72/32.png) [@Rigamarole](https://boards.straightdope.com/u/Rigamarole)\ **Post date:** [June 7, 2011, 6:04pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/8 "2011-06-07T18:04:37Z")
> [@lazybratsche](#): > > The official unemployment rate is just one indicator of the economy. Yes, I’ve always looked at it more like unemployment rate is a symptom to look for, but it doesn’t necessarily tell the whole story (and it’s not supposed to). It’s like if the murder rate suddenly jumps from 1 out of 1000 people to 5 out of 1000 people (or whatever). Most people still don’t really need to fear that they will get murdered, but they do have cause for alarm that the conditions are present, whatever those conditions may be, that caused murders to increase by 500%. ---
**Author:** ![Markxxx](https://avatars.discourse-cdn.com/v4/letter/m/5daacb/32.png) [@Markxxx](https://boards.straightdope.com/u/Markxxx)\ **Post date:** [June 7, 2011, 6:23pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/9 "2011-06-07T18:23:41Z")
Also realize jobs aren’t equal. In 2004 at a temp agency I made $15/hour entering data in Excel spreadsheet. I had a temp job at the same company last year entering data in an Excel spreadsheet that paid minimum wage. So in 2004 and 2010 the exact same job was out there. The pay was $7.00 less. That hardly translates correctly, but statistics would show it as the same. ---
**Author:** ![thelabdude](https://avatars.discourse-cdn.com/v4/letter/t/dc4da7/32.png) [@thelabdude](https://boards.straightdope.com/u/thelabdude)\ **Post date:** [June 7, 2011, 7:59pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/10 "2011-06-07T19:59:25Z")
As several have mentioned, employment is more than the official employment rate. However, the economy is more than employment. How is business doing? Some companies are doing well, but other not so. ---
**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\ **Post date:** [June 8, 2011, 3:17pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/11 "2011-06-08T15:17:29Z")
To put it another way: the economy doesn’t care about the job/ employment situation, and can keep booming at least for a while in other areas. But the state/ govt., and the people, care about being unemployed, esp. if it hits a lot of people - everybody knows somebody who’s unemployed - and many more feel threatened. For the govt., a large portion of poor is not good for obvious reasons; also, it means that spending and income is low, which means taxes are low (The state could tax corporations, but that would mean first closing loopholes and off-shore seats of business and other things, which the paid lobbyists wouldn’t like). ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [June 9, 2011, 2:28am UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/12 "2011-06-09T02:28:00Z")
> [@Duckster](#): > > There is always a percentage of workers who are in job transition, be it voluntary or involuntary. That transition factor has been categorized for years as five percent unemployment. Hmmm… I believed this transition factor (plus people voluntarily not seeking employment, training, essentially unemployable workers,etc…) was rather 2-3%, which was the level of full employment (IOW, that at 5% there are still people willing but unable to find a job). By the way, if the bottom limit was 5%, you’d see inflationist pressures appear at this level. ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [June 9, 2011, 5:32am UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/13 "2011-06-09T05:32:49Z")
> [@clairobscur](#): > > Hmmm… I believed this transition factor (plus people voluntarily not seeking employment, training, essentially unemployable workers,etc…) was rather 2-3%, which was the level of full employment (IOW, that at 5% there are still people willing but unable to find a job). > By the way, if the bottom limit was 5%, you’d see inflationist pressures appear at this level. It appears your view is closer to reality to mine, if we take this into account: > [@](#): > > The United States is, as a statutory matter, committed to full employment (defined as 3% unemployment for persons 20 and older, 4% for person aged 16 and over), the government is empowered to effect this goal, and a job is a right.[[5]](https://secure.wikimedia.org/wikipedia/en/wiki/Full_employment#cite_note-4) The relevant legislation is the [Employment Act](https://secure.wikimedia.org/wikipedia/en/wiki/Employment_Act) (1946), initially “Full Employment Act”, later amended in the [Full Employment and Balanced Growth Act](https://secure.wikimedia.org/wikipedia/en/wiki/Full_Employment_and_Balanced_Growth_Act) (1978). The 1946 act was passed in the aftermath of [World War II](https://secure.wikimedia.org/wikipedia/en/wiki/World_War_II), when it was fear that demobilization would result in a depression, as it had following [World War I](https://secure.wikimedia.org/wikipedia/en/wiki/World_War_I) in the [Depression of 1920–21](https://secure.wikimedia.org/wikipedia/en/wiki/Depression_of_1920%E2%80%9321), while the 1978 act was passed in following the [1973–75 recession](https://secure.wikimedia.org/wikipedia/en/wiki/1973%E2%80%9375_recession) and in the midst of continuing high inflation. > > The law states that full employment is one of four economic goals, in concert with growth in production, [price stability](https://secure.wikimedia.org/wikipedia/en/wiki/Price_stability), and [balance of trade](https://secure.wikimedia.org/wikipedia/en/wiki/Balance_of_trade) and [budget](https://secure.wikimedia.org/wikipedia/en/wiki/Balanced_budget), and that the US shall rely primarily on private enterprise to achieve these goals. > > Specifically, the act is committed to an unemployment rate of no more than 3% for persons aged 20 or over and not more than 4% for persons aged 16 or over (from 1983 onwards), and the Act expressly _allows_ (but does not _require_) the government to create a “reservoir of public employment” to effect this level of employment. These jobs are required to be in the lower ranges of skill and pay so as to not draw the workforce away from the private sector. > > However, since the passage of this act in 1978, the US has, as of 2011 never achieved this level of employment, nor has such a reservoir of public employment been created. [Full employment - Wikipedia](https://secure.wikimedia.org/wikipedia/en/wiki/Full_employment#United_States) ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [June 9, 2011, 6:48am UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/14 "2011-06-09T06:48:30Z")
I dunno, if an extra 5% of the labor force are searching for work _and cannot find it_, above and beyond the usual search times (reflected in frictional unemployment) or obsolete skills (reflected in structural unemployment), that suggests that something is seriously out of whack. That said, a recession involves many factors, among them a decline in output. Unemployment is both a cause of trouble and a measure of it. ---
**Author:** ![MandaJo](https://avatars.discourse-cdn.com/v4/letter/m/ac91a4/32.png) [@MandaJo](https://boards.straightdope.com/u/MandaJo)\ **Post date:** [June 9, 2011, 10:05am UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/15 "2011-06-09T10:05:46Z")
Remember, too, that 5% is one out of 20. That’s actually a pretty high rate: imagine if one day your old high school randomly kicked one out of every twenty students out. That would be enough to be disturbing, and certainly enough to notice a change in the overall student body. ---
**Author:** ![phreesh](https://avatars.discourse-cdn.com/v4/letter/p/9fc29f/32.png) [@phreesh](https://boards.straightdope.com/u/phreesh)\ **Post date:** [June 9, 2011, 3:55pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/16 "2011-06-09T15:55:53Z")
Another factor, from a government perspective is that unemployment provides a double hit. Not only are unemployed people receiving benefits from the government (costing the government money), they are also not paying taxes (depriving the government of money). ---
**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\ **Post date:** [June 9, 2011, 4:07pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/17 "2011-06-09T16:07:18Z")
> [@phreesh](#): > > Another factor, from a government perspective is that unemployment provides a double hit. > > Not only are unemployed people receiving benefits from the government (costing the government money), they are also not paying taxes (depriving the government of money). Plus the ripple effect: Walmart can always sell cheap food. But all the other small luxuries and extra buys are deferred when people are either out of work or afraid to be shortly. This causes loss of income to small business, which let people go, which causes loss of business etc. in a downward spiral. ---
**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\ **Post date:** [June 9, 2011, 4:08pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/18 "2011-06-09T16:08:57Z")
> [@MandaJo](#): > > Remember, too, that 5% is one out of 20. That’s actually a pretty high rate: imagine if one day your old high school randomly kicked one out of every twenty students out. That would be enough to be disturbing, and certainly enough to notice a change in the overall student body. Good point. And if you apply the “only 5% difference” to inflation, you can see that it’s a lot, too: An inflation of 1 - 2% is normal now. But an inflation of 6 or 7 %? That makes it almost impossible to keep up in the race between inflation and wage raise. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [June 9, 2011, 4:13pm UTC](https://boards.straightdope.com/t/is-a-good-vs-bad-economy-based-on-the-unemployment-rate-really-determined-by-5-of-the-population/584629/19 "2011-06-09T16:13:23Z")
And it’s not _just_ those folks who are unemployed who feel the pain. Even though most people are still employed, most people also know someone who isn’t. “Man, the economy is really in the crapper right now… Cousin Frank got laid off from his job of 23 years last year, and he’s been trying to find something ever since. It’s been really tough for him and his wife to keep their family fed”.