New jobs, new employees and unemployment

[Pabitel]

I’ve been thinking about this one for some time and this mornings jobs report decided me to finally ask.

I always follow the employment reports just out of pure curiosity. For many years they made perfect sense. But for the past several years I just can’t make heads nor tails of them.

I tried to find some good historical figures before posting but finding these statistics online poroved harder than I thought (I usually rely on the news for my statistics). So if anybody has a good link where I can look at the actual numbers I will try to back up my observations with cites. In the mean time I’ll just speak in generalities.

My understanding is that a great number of people became unemployed right around the turn of the century. Finally the treand for total job loss reversed but it never made it back up to what could be considered a robust level. I do not know if the total jobs lost were ever actually replaced by job creation or not. Even so my understanding is that about 150k new employees enter the workforce monthly. That is the aproximate number of jobs that the economy has been creating, some months a few more, some a few less.

I think all of that is pretty uncontroversial.

My question is why has unemployment been going down? There doesn’t seem to be an excess of jobs or a shortage of people needing work. I have heard some talk about people dropping off the employment rolls because they stop looking for work. Is this a factor? are there hundreds of thousands of people out there who have either moved to the grey or black ecomony? Or are they just being supported by others?

Any insight would be appreciated.

[hawthorne]

A very good place to start is the BLS. If you click on an item, you can then reformat to find data from earlier years - the one I clicked on went back to 1948.

Several things balance the labour market. One is that wages adjust to equalise supply and demand. Another is that people become unemployed. Another is that people drop out of the labour force. This last one is measured by the participation rate or discouraged workers. If you look at that from 1996 to now, it (all the time bouncing around a little) declines from 1996 to 2000 from around 400 000 to 250 000, then increases to something like 460 000 by mid 2004. It’s currently looking about 370 on a decling trend.

[Philster]

I do alot of hiring, and meet with people in the industry who do alot of hiring, and labor pools are the thinnest we ever experienced. Near 4% unemployment to someone who hires means that the market is maxed out.

Unemployment, should it get any lower can stifle business and spur inflation.

Yes, unemployment had been going down, but it actually can’t get much lower.

Wages are somewhat stuck, as companies reinvest to rebound first…they hire and increase job #s next, then will boost wages to retain and attract employees.

It is a nice cycle. We are right at the point where the only thing left to do is to increase wages to keep people from leaving, and to attract what little talent is out there (or what talent is out there and works for someone who isn’t smart/competitive and hesitates to raise wages).

[Gfactor]

Understanding Unemployment (pdf)

and see,

Unemployment is estimated at 5 percent26 in 1900; in 1999 it averaged 4.2 percent.27 While these two figures are not much different, they reflect very different dynamics. Data from four States—California, Kansas, Maine, and Michigan—and the 1910 census suggest that workers around the turn of the century faced a high probability of being laid off or unemployed sometime during the year. But the length of time one was unemployed was likely to be shorter than it was at the end of the century.28 In 1999, the median duration of unemployment was 6.4 weeks.29

There were 19 business cycles in the 20th century.30 As a result, the century experienced periods of very low unemployment and periods of extremely high unemployment. Between 1900 and 1908, the unemployment rate fell below 3 percent. Later in the century, rates above 8 percent were recorded during recessions, such as those in 1915, 1921, 1975, and 1982. The highest rates of unemployment came during the Great Depression, when there were rates above 20 percent for several years. In 1933, there were more than 12 million workers unemployed; and the unemployment rate averaged 24.9 percent. More recently, double-digit unemployment rates were recorded during parts of 1982 and 1983, but there was a fairly steady decline from 7.8 percent in mid-1992 to 4.1 percent at the end of 1999.31

http://www.bls.gov/opub/cwc/print/cm20030124ar02p1.htm

[Pabitel]

Thanks for the link. I found some good numbers there but am still unable to find any numbers for job creation. Maybe I’m just looking in the wrong place or under the wrong title.

The new report has now been released and it highlights my point. I think I am right that, on average, there is a 150k increase in the workforce monthly, just from new people joining the workforce (young people, immigrants, etc.). It seems pretty intuitive that in order to maintain employment levels you would need the economy to generate 150k new jobs. This month it only managed 92k new jobs and yet unemployment went down.

So it looks like that all 150k new workers found jobs and some of last months unemployed found jobs. Yet there were only 92k jobs for both groups to compete for.

It just doesn’t add up.

[Fear_Itself]

@Pábitel

I have heard some talk about people dropping off the employment rolls because they stop looking for work. Is this a factor? are there hundreds of thousands of people out there who have either moved to the grey or black ecomony? Or are they just being supported by others?

Yes, discouraged workers are a factor in the government’s misrepresentation of unemployment statistics:

**Who is counted as unemployed? **

Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.

Who is not in the labor force?

All members of the civilian noninstitutional population are eligible for inclusion in the labor force, and those 16 and over who have a job or are actively looking for one are so classified. **All others–those who have no job and are not looking for one–are counted as “not in the labor force.” **

Discouraged workers – Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.

http://www.bls.gov/bls/glossary.htm#D

The unemployment statistics would not be so rosey if discouraged workers were not omitted.

[Barbarian]

Your estimate as to the number of job created each month seems a little too rosy. I recall many times in the past year the job creation numbers were much lower than expected. But I’m not going to go digging out figures – you’ve got other links to do that in.

IMHO, the reason the unemployment rate is dropping is because older workers are retiring. Sometimes because they want to, but more likely because they’ve been laid off in their fifties and can’t get rehired, so they’re giving up. That’s just human nature. If you’ve been an autoplant worker for 30 years and the plant closes, do you really want to retrain to become a mall worker? And if you’re in another field, someone actually hire you at age 59? Unlikely.

[gonzomax]

The LA times did an invesigation because the numbers didnt add up. They say that the rate is at least 50% under reported. When your unemployment runs out ,you are dropped off the unemployment rolls. Thousands drop off every month.

[ChiMagnet]

One thing that helps is you have to break down unemployment. For instance I work in resturaunts and we always need help. But the job turnover rate is astronomical. It’s even worse in fast food, where the average worker stay less than 6 months.

You have to look at job worth not employment. If a person made $50,000 and loses his job and comes to work for me and is now making $20,000 he is making much less. One can break down employment statistics with a base salary. If you use $50,000 in your statistic you could say to replace that $50K you need more than two $20K to do it.

But employment stats don’t do this? One job is the same as another. Furthermore you have to break it down by city and age. I live in a big city with a lot of teens. My resturaunt never lacks applicants. But other resturaunts in the suburbs which are similar don’t have the labor pool. Teens don’t need to work, or can’t get to jobs. They have a lot of issues filling jobs. I don’t have that.

You can’t compare stats directly and that is why you become confused. You need to find the specialized areas of employment then compare them.

When you compare any two statistics make sure you compare equals. Methods change. For instance Reagen changed the unemployment statistical method a lot. So any comparison from prior years is invalid. Other administrations have further tinkered with it. So you can see you can’t compre directly, only by breaking the generalized statistic down can you get a true picture.

[muldoonthief]

@gonzomax

The LA times did an invesigation because the numbers didnt add up. They say that the rate is at least 50% under reported. When your unemployment runs out ,you are dropped off the unemployment rolls. Thousands drop off every month.

Cite?

Because the number of unemployment insurance claims is not used when calculating the unemployment rate. The theory that people who stop receiving unemployment insurance are no longer counted against the unemployment rate is a myth.

How is the unemployment rate related to unemployment insurance claims? : ...