What’s Wrong With The Unemployment Rate? - YouTube

Another upbeat jobs report, a history making jobs report, jobs report.

On the first Friday of every month, the Bureau of Labor Statistics releases the most current unemployment numbers for the

country, which are the number of unemployed divided by the number of people in the labor force.

This is not to be confused with the weekly jobless claims number, which only takes into account the number of people who applied for

unemployment insurance.

The latest weekly jobless claim number was 861000, an increase of 13000 from the previous week.

I call the unemployment rate a sneaky statistic because we look, we focus so much attention on that.

And yet it's it's limited in terms of what it gives us.

The latest numbers show that payrolls barely grew at the start of 2021, even as the unemployment rate fell to 6.3

percent in January 2021, the U.S.

added 49000 jobs.

Overall, over four million people have left the labor force because of the pandemic, and about 12 million of the more than

22 million jobs lost at the beginning of the coronavirus have been recovered.

A February report from the Congressional Budget Office predicted rapid growth recovery in 2021 and the labor force

returning to pre pandemic levels by 2022 sooner than expected.

But some experts believe that the official numbers may not truly reflect darker parts of the labor market.

It doesn't tell you what the pain is in the labor market completely.

Right? It's only telling you about folks who are actively available and looking for work in the last four

weeks. So for folks who have been discouraged and given up, they're not going to be counted there.

And it's also not going to count the folks who are have had their hours reduced and are working part time because that's all

that's available to them.

Labor Department's latest report also shows that long term unemployment is going up, leaving many families in a precarious

situation. In August, I received a termination letter stating, since I quit my temp job, I

was being disqualified from benefits.

Luckily, at that time, I had just accepted a contract position and was able

to be employed through December of 2020.

I know everyone's doing all that they can and I know there are people out there that are worse off than me.

But right now we're just in dire straits and I'm struggling just to put food on the table for

my two small children.

This contrasts the rosy expectations that we see from some of the numbers.

So is the unemployment rate wrong and how can the US better understand the employment situation?

Economists and traders were shocked after the unemployment rate unexpectedly dropped in May 2020 after

shooting up in March and April due to the coronavirus pandemic.

Employment rises by two and a half million.

I'm reading that right. Payrolls rose by two and a half million.

The unemployment rate declined to 13.3 percent.

This is a huge gain.

Many were quick to point to problems with the data itself.

This number caught just about everybody off guard.

I know Steve Liesman, when he looked at the numbers coming out, actually did a double take and had to really read through to see if he was reading

things correctly. The Bureau of Labor Statistics, the government agency in charge of calculating the official unemployment

figures in the U.S., has a history of misclassification errors in which workers are mistakenly counted as employed rather

than unemployed. In the case of the May jobs report, the unemployment rate without the error would have been closer to

16.3 percent, a big difference from the reported 13.3 percent.

The BLS has been trying to account for this in their subsequent reports.

In the latest report, it states that from March through December, BLS published an estimate of what the unemployment rate

might have been had misclassified workers been included among the unemployed.

That misclassification error has been cut down to about 0.6 percent.

I think they've done a really good job of making adjustments to actually improve the

accuracy since May.

And I think it's important to note that there's always an undercount even before covid,

because the places where they're less likely to get responses are people who are unemployed.

The discrepancy sheds light on a broader debate over whether the official unemployment rate, formally known as U3, is the

best measure of joblessness in the U.S..

U3 is the total unemployed as a percent of the civilian labor force includes all jobless persons who are

available to take a job and have actively sought work in the past four weeks.

We really want our government to measure things and we want to be able to manage what we measure.

But I think it's good to look at the different types of data to sort of try to get a more complete

picture. But I still feel like that BLS is going to be our gold standard.

When people look quit looking for work, the unemployment rate will fall, other things the same.

And so if we're just looking only at the unemployment rate, that would give us a message that labor market conditions are improving when in

fact they may not be. It would be

really hard to survey over 330 million Americans every month, so the Census Bureau surveys around

60000 households every month, or about 110000 individuals through their current population

survey. The numbers are not based solely on those who are receiving unemployment benefits because that would not count people whose

benefits have expired or those who haven't applied for unemployment.

It takes about 2700 field workers about 10 days to complete the survey.

The official U3 number is in the middle of six unemployment rates.

That could broader the higher the numbers go.

U1 are persons unemployed 15 weeks or longer as a percent of the civilian labor force.

U2 are job losers and persons who completed temporary jobs.

U3 is the official unemployment rate.

U4 is U3 plus discouraged workers, discouraged workers were those not currently looking for

work, specifically because they believed no jobs were available for them or there were none for which they would qualify.

U5 is U4 plus all other marginally attached to workers, which are persons not in the labor force

who want and are available to work and who have looked for a job sometime in the prior 12 months.

But were not counted as unemployed because they had not searched for work in the four weeks preceding the survey.

U6 is U5 plus the total employed part time for economic reasons.

U3 tells us a lot about how well the labor market is clearing.

I think, you know, for purposes of fiscal stimulus or monetary policy, you certainly want to have an

understanding of who out there is looking for a job and saying they can't find one.

It doesn't make a whole lot of sense to say, well, there are a lot of folks who aren't looking for work and don't have a job, which

means there aren't enough jobs that that's not quite the right way to think about it.

Some argue other metrics are a better gauge of the state of the labor market, like the labor force participation rate, which is the

percentage of the civilian noninstitutional population, 16 years and older that is working or actively

looking for work. That number has been declining for more than 20 years.

As more baby boomers retire.

in January 2021, the labor force participation rate was 61.4% percent.

When we look at the unemployment rate, we have to look at other labor market indicators and there's a key one.

The labor force participation rate, which is a good bellwether in terms of, you know, is the unemployment rate changing

because more people are looking for work or less, or is it changing because there are more jobs available?

These numbers show just one aspect of the whole situation.

And the way unemployment works is different in every state.

The average American unemployment check was 378 dollars at the end of 2019, the coronavirus

package passed in December 2020 added 300 dollars in extra unemployment aid until March 14th.

The first stimulus package added a weekly unemployment check of 600 dollars and added an extra 13 weeks of

eligibility. I think that did actually perhaps boost unemployment a little bit at the start of

this pandemic because people who might otherwise have tried to keep on working, even though

somewhat dangerous working conditions decided, look, I'll take the six on the dollars extra for as long as I can get it.

That was quite generous.

I think there's less of that going on right now.

Unemployment is funded by a previous employer through federal unemployment taxes.

That goes into a giant fund designed to be a social safety net for workers who lose their jobs.

The process can be complicated, but most companies are required to pay a 6% federal tax on the first

7000 dollars of every employee salary every year.

After state tax breaks, the percentage sometimes drops below one percent.

The amounts will vary depending on where you live.

Check with your local labor board for more details.

Here's a case study. We'll assume someone in New York lost their job making 50000 dollars a year through no fault of their

own. And they decided to file for unemployment benefits in March.

To start the math, you'll need to look at a calendar.

The calculations are based on something called base periods.

They divide your salary into four separate three month blocks on a calendar.

But simply, it's the amount of money you earned every three months for the last year, not including the current block.

This is called your basic pay period.

If you make 50000 dollars paid at a steady rate, you'll bring home 12500 dollars every quarter.

In New York, they take your highest wage quarter and divide it by 26.

This gives you 480 dollars or half of your previous salary.

This would usually be paid out for the next 26 weeks.

The next stimulus package, which is likely to pass Congress soon, will boost additional federal unemployment benefits to

four hundred dollars a week until August 29th.

The programs include extensions of the pandemic, unemployment assistance for self-employed, gig, and other workers who don't

qualify for state benefits and pandemic emergency unemployment compensation For those who used up their standard

allotment of state aid.

the access to additional benefits has left many workers unsure how or when they can collect extra unemployment

benefits. President Biden has expressed a desire to avoid a benefits cliff like after Christmas in 2020, when

nearly three million people lost their unemployment insurance benefits.

The 900 billion dollar stimulus package hadn't passed in time to avoid the lapse.

I was one of the lucky ones that wasn't really affected by that too much.

But my day is coming and I'm just curious to see how we're going to be dealing with that.

Some argue that Biden's stimulus may be too big amid economic recovery and should instead be targeted at those most

impacted. Any further action should be smart and targeted, not just an imprecise

deluge of borrowed money that would direct huge sums toward those who don't need it.

President Biden hoped to secure bipartisan approval for his stimulus package, but Democrats in Congress are proceeding without

Republican support. The first

state in the U.S. to offer unemployment insurance benefits was Wisconsin in 1932, at the height of the Great

Depression. As the depression worsened, more states began considering benefits.

But many were discouraged from enacting programs because states with UI benefits were at a competitive disadvantage with

states with no laws.

That's when the federal government stepped in.

The federal unemployment insurance program was created in 1935 when President Roosevelt signed the Social Security

Act, part of his New Deal in response to the Great Depression by 1937.

All states and territories had enacted their own unemployment insurance laws.

The current population survey, where unemployment data is pulled from, started in 1940.

The beauty of that particular measure, the unemployment rate calculated off of a survey, is it really

been doing that the same way all the way since World War Two.

So we have now got 70 years of data, more than 70 years of data

on on a simple question, are you working right now or if you're not working, Have you actually look for a job in the last four

weeks? And so we've got this long time series which does explain one aspect of what's going on in the labor market.

Unemployment insurance wasn't new.

In the early 19th century, some trade unions started offering benefits to members who were out of work.

But according to the Social Security Administration, less than 100000 union members were covered by unemployment benefit

plans in 1934.

labor unions have been instrumental in gaining benefits for their members.

Union membership has been in decline since 1983, when 20 percent of those employed were union members.

In 2020, that number was down to ten point eight percent.

What we've seen over time is the erosion of worker power, right?

So corporate power has been increasing, increasing and with the ways the law has changed to make it

harder for workers to organize and join together collectively to bargain for wages and terms and

conditions of employment, we're seeing that the balance is lopsided.

And so for companies, if there's no counterbalance, they're just allowed to focus

on their shareholders.

But the coronavirus pandemic may be causing support for labor unions to rise after a Gallup poll found that

65 percent of people approve of unions, a figure not seen for more than 20 years.

Women have entered the workplace at record speed since the introduction of birth control in the 1970s.

But a recent study from McKinsey and LeadIn.org shows that women, particularly women of color, have been laid off,

furloughed and are considering leaving the workplace as pressures of home and work mount due to the coronavirus

potentially devastating the progress made.

I think what we've seen with covid is because so many schools remain closed, that that has affected

labor force participation rates, particularly for women.

They're leaving the labor force because of these challenges around balancing work and family, which the US

of the developed countries has, you know, sort of a behind the times approach to how do

we balance work and family.

Our policies are more arranged for like a 1930s family where the man is the

breadwinner. And even with our unemployment insurance programs.

To adjust for that policy expectation, progressive advocates are fighting for a federal minimum wage of fifteen dollars an

hour as an incentive to keep women in the workplace.

A recent report from the Congressional Budget Office stated that a 15 dollar minimum wage would reduce employment by

1.4 million workers or 0.9 percent, but lift 900000 people out of poverty.

But there are other reasons.

Some believe a 15 dollar minimum wage would be beneficial to the economy as a whole.

So not only will you have a better wage when you're working, but if you're in between jobs, you

actually have a more robust safety net for you there.

I think some economists have said and looked at the reduction in the cost of

public assistance types programs.

Some jurisdictions like New York City and Seattle have or are working up to a 15 dollar minimum wage.

But some say it is not feasible at the federal level.

I think it's noteworthy that there's not a single state in the nation right now that has a fifteen dollars an hour wage.

States can and do raise their own minimum wage, but I think more than 40 have their own minimum wage and it's

oftentimes above the federal seven dollars and 25 cents.

They can do it. California can do it.

West Virginia can do it. Illinois can do it.

And they're not doing it because they don't want to do it.

It doesn't fit their local needs.

It is yet to be seen how the unemployment landscape will shape up as the world begins to reopen after covid-19.

But learning from the data can tell us how to better prepare for the next downturn.

I'm sure there will be folks who try to just take that as the new normal and during the next downturn say, all right,

let's let's go do what we did last time during covid.

But but I think most sensible folks will realize that a typical recession is a different situation

and there's a much, much tougher balance to be struck by both helping those in need,

but also making sure that that we're getting people back to work as soon as we can.

I've always been a planner.

I've never done anything without a plan.

And now I am at a loss.

I've always had an answer for everything.

And I'm running out of Answers running out of time and most of all, running out of income.