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Posted by: Doug Henwood | September 7, 2019

Rasmus on the attack again

The irrepressible Jack Rasmus, who has never demonstrated any real understanding of how economic statistics are constructed, has a new post claiming that the “real” unemployment rate is more like 10–12% than the officially reported 3.7%. He has a point, even if it’s somewhat overstated. The government’s own broad unemployment rate, U-6, was 7.2% in August, nearly twice the headline rate, though short of the Rasmus rate. (See table A-15 here.)

One of the ways the government undercounts the unemployed, says Rasmus, is that the monthly survey “misses a lot of workers who are undocumented and others working in the underground economy in the inner cities”—but by Rasmus’s own account, these people are working, not unemployed. No doubt there are many uncounted unemployed living at the margins, but Rasmus can’t even make his own point accurately.

All that’s a topic in itself, which I’ve written about here and here. But I just want to address this claim about why the participation rate—the share of the adult population working for pay or actively looking for such work—has failed to return to pre-Great Recession levels:

Finally, there’s the corroborating evidence about what’s called the labor force participation rate. It has declined by roughly 5% since 2007. That’s 6 to 9 million workers who should have entered the labor force but haven’t. The labor force should be that much larger, but it isn’t. Where have they gone? Did they just not enter the labor force? If not, they’re likely a majority unemployed, or in the underground economy, or belong to the labor dept’s ‘missing labor force’ which should be much greater than reported. The government has no adequate explanation why the participation rate has declined so dramatically. Or where have the workers gone. If they had entered the labor force they would have been counted. And their 6 to 9 million would result in an increase in the total labor force number and therefore raise the unemployment rate.

Jack’s numbers are, as usual, a little off. The participation rate hasn’t declined by 5 percentage points since 2007. At its peak (which was in January 2008, not 2007, but let’s not quibble) it was 66.2%. In August 2019, it was 63.2%. That’s a 3-point decline, not 5. (It got as low as 62.4% in 2015, but it’s recovered some since.) But that’s beside the point I want to make now. What I want to do now is to refute the claim that “The government has no adequate explanation why the participation rate has declined so dramatically.”

Rasmus writes as if he’s the only person to ask the question. But he’s not. The Bureau of Labor Statistics (BLS) has published a good deal of material on the issue, like here, here, here, and here. Tl;dr: the baby boomers are aging and retiring or shuffling towards retirement. (I develop that point here, arguing that aging explains about half the decline between 2000 and 2017.) The BLS also has an essay here that suggests that the culprits are “less-generous maternity and child-care policies, higher incarceration rates, poorer health outcomes, and less spending on on-the-job retraining and job-search assistance programs.” Outside the BLS, Federal Reserve economists have also written on the topic, like here, where Kansas City Fed staffer Didem Tüzemen argues that job market polarization—the disappearance of middle-skill jobs and the bifurcation of the job market into high-skill and low-skill jobs—may be responsible. Outside government, the late Alan Krueger argued that chronic pain and opioid addiction accounted for a lot of the decline in participation. In other words, lots of people, including the BLS, have addressed this issue.

You can really learn a lot by reading, Jack. And if you do, you can mount a sharper and more credible critique of this wretched system than with the usual off-the-cuff bloviating.

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Responses

  1. Well,here we go again. Henwood preferring to attack anyone who dares challenge the veracity of government statistics, and who might suggest that maybe, just maybe the labor department’s methodologies have been lagging the dramatic changes that have been impacting the labor markets in recent years. Rather than challenge his good buddies in the government bureaucracies, he prefers to play attack dog against those who do.

    Let’s take a look at what he’s saying, and how he cherry picks and distorts my points.

    First, how about the labor force participation rate that’s his main topic. At the beginning of 2000 it was 67.3. It hit a low at 62.4 four years ago. That’s 4.9 percentage points. Today, four years later it’s only 63.2 or 4.1 points. That’s 6.7 million potential entrants to the labor force who aren’t in it. Presumably they’re adults and supporting themselves some way. Why aren’t they in the labor force numbers. Better ask the bureau of labor statistics buddies of Doug, but they have no answer. More importantly, they reduce the labor force and thus understate unemployment. I believe I said in my article (not quoted by Doug) that it means more than 5 million are thus not counted. Doug can quibble about whether it’s 2015 or 2007 or 2000, but the point is there’s a dramatic decline in the participation rate and the BLS refuses to adjust its employment numbers to reflect it. Result: unemployment is under-stated.

    My point about undocumented and underground workers is of course many are working but it is highly likely more are not working and the vast majority are working part time and temp jobs. That’s a net negative for the U-6 unemployment rate. Again, because the CPS conducts a phone survey that doesn’t pick up these groups (who don’t answer I’m sure), it under-estimates the net underemployment/unemployment of these groups.

    What Doug refuses to address is how I estimate the real unemployment rate is likely 10%-12%. He just says it’s not accurate. I guess he thinks the ‘discouraged’ worker, ‘missing labor force’ worker, and ‘involuntary part time worker’ numbers offered by the BLS are accurate. I don’t. And I suppose he doesn’t believe that the million more who went on the SSDI roles after 2009 should not be counted as unemployed either.

    Really Doug, you should stop trying to call people names and acknowledge that maybe the government is not always telling the facts. It’s not that they are outright lying. It’s just that the labor markets are changing faster than their methodologies can keep up and that they’re bureaucratically conservative. Or even purposely obfuscating, as in their latest report on the number of Gig workers, where they excluded Uber drivers as well as anyone for whom gig work was not their primary job.


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