The “Real” Unemployment Rate

[SPasse]

Hi All,

The news agencies just reported that the unemployment rate “dropped” to 9.7%

But the real unemployment rate may be 20%

http://finance.yahoo.com/news/Real-Unemployment-18-Will-etfguide-45329818.html?x=0&.v=1

I wonder how the rate was calculated during the great depression, when the “generally agreed upon” unemployment figure was around 25%?

Regards,

Scott

[Ninong]

Scott,

You and I have been talking about this exact point for the past several years. For decades now, the government has been playing games with unemployment statistics. The numbers in that article appear to be accurate, however, the article is not exactly unbiased as it is an infomercial for and ETF newsletter for the bargain basement price of only $149 a year.

The very last sentence in the article links you to their newsletter if you want to see exactly how low they are predicting the second dip will go. In other words, they are predicting a double-dip recession. I feel more comfortable reading economic predictions made by respected economic experts without a dog in this fight. That being said, I'm still not entirely convinced that we won't experience a double-dip recession. I'm encouraged that some of the best authorities (my favorite being Paul Krugman), who were pessimistic several months ago, have now turned optimistic.

I'm still not convinced that the worst of the housing bubble deflation is over yet. BTW, we talked about the housing bubble several years ago in this forum, remember? Remember when I was cracking up LOL when the market went through 14,000? I asked if those people were out of their minds, or words to that effect.

The entire U.S. economy has been a house of cards for the past 17 years, going back to the repeal of Glass-Steagall. The big banks finally bought themselves enough congressmen -- in both parties -- to get what they wanted. All it took was the election of Bush-Cheney for them to really screw things up.

The housing bubble could never have happened with the safeguards that we used to have in place two decades ago. You can talk about the government putting pressure on Fannie and Freddie to make loans to unqualified buyers all you want but that's not what's at the root of the problem. The root of the problem was that the banks were not holding those loans themselves. Everything was packaged and resold. And resold. Again and again. And, on top of all that, 'insurance policies' were written to guarantee against losses in those loan packages and those derivatives were leveraged up over and over again. We can thank the crooks at AIG for that little pyramid scheme.

If I remember correctly, I think I guessed that the total amount on AIG's books might have been $500 billion. In retrospect, that was a low estimate. I think back in August or September 2007 I said we would probably see a total of $400 billion in worldwide losses due to mortgage defaults. OMG! In retrospect, that number was nowhere close to the actual total, which we now know is in the trillions after you unwind all of the leveraging. And that doesn't even take into consideration the loss in market value of the world's equity markets.

I have to stop ranting now before I convince myself that we're heading for the second dip of this Great Recession. I would rather believe that we're pulling out of it and that things will start to improve sometime late this year or early next year. The latest worry now is that Greece, Portugal and Spain may default on their bonds. Hey, remember when Bush came back from a visit to Greece and he said he enjoyed meeting the "Greecians?"

;)

[Ninong]

I wonder how the rate was calculated during the great depression, when the “generally agreed upon” unemployment figure was around 25%?

An interesting question for a number of reasons. One thing that struck my mind is the fact that our present workforce if majority female -- just slightly, but nonetheless there are more women than men in the U.S. workforce. Obviously this wasn't the case in the 1930's, when virtually all married women with children were stay-at-home moms. In fact, the great majority of married women were not employed outside the home whether they had children or not.

That means that, given a 5% unemployment rate (full employment), the percentage of workers today as a percentage of the total population is much higher than it was back in the 1920's. What I'm talking about here is 5% unemployment now compared to 5% unemployment in the 1920's. Of course, you would have to figure out how to account for agricultural homemakers during the 1920's. Would you count a mother of five children who lives on a farm as employed outside the home or not? The percentage of the population that worked in agriculture in the 1920's was much higher than it is today.

Therefore, there are no direct comparisons between unemployment during the Great Depression and unemployment today. The number of people working today -- meaning right now -- as a percentage of the total population is much, much higher than the percentage of people working at the very best times during the early 20th century. There are more jobs per 100,000 people than there were 75-100 years ago.

BTW, here's the latest (Feb. 5) BLS news release. I was browsing around their site trying to find overtime hours but I gave up. CNBC said Friday that overtime hours are rising, which would be a very good indicator. Overtime hours always rise before new hires. Unemployment, as you know, is a lagging indicator. The stock market is a leading indicator, usually by about 6-9 months, but that's talking about the overall economy, not necessarily unemployment. Full employment usually lags by 18 months. Just look at Reagan's first term for confirmation of that statistic, which is why he had problems the first couple of years.