Dispelling the Myth of Low Unemployment

Yves Smith of Naked Capitalism submits:

Doing some weekend catch-up, and a reader pointed me to a very good post by Barry Ritholtz, which confirms something I’ve believed but haven’t gone to the trouble to prove, namely, that unemployment is much higher than the government releases would have one believe.

Full disclosure: I’m skeptical of quite a few government stats: GDP (badly tainted by hedonic adjustments), inflation (calculation methods revised in the 1990s which reduced annual reported CPI roughly 0.5%, which lowers Social Security and other CPI benefit adjustments; Ritholtz has been active on this beat), and more recently, job creation figures.

As Ritholtz says,

Anyone with more than 4 functioning brain cells should be able to figure out that a 4.5% unemployment rate would be causing huge labor shortages and wage increases.

On a macro level, if unemployment were as low as 4.5%, labor would have more bargaining power, which is inconsistent with widely reported stagnant wages.

On a micro level (yes, this is anecdotal), there are way way too many people over 40 who are un- or underemployed, or “retired” at a modest level when they’d rather be working. If you lose that corporate meal ticket, it is an long way down. In most cases, mid to senior corporate employees and professionals have narrow skills that can only be deployed in roles similar to the one they lost. And companies are onservative in how they hire (another sign of a slack labor market, since if it were hard to find workers, they’d have to accept employees who were a less than exact fit).

One of many tidbits from the other end of the employment spectrum: over 5000 people applied for 300 jobs at Apple’s new Fifth Avenue store in Manhattan. Now perhaps many of them were employed in retail elsewhere and wanted what they thought was a kinder and cooler environment, but no matter how you dress it up, this is a on-your-feet-all-day, low-end job. Note that other large store openings in the New York metro area get similar overwhelming responses even though the BLS says the unemployment rate here is on par with the national level.

Back to Ritholtz:

So long as we are popping economic myths, let’s also dispatch with the 4.5% unemployment rate. That number has been largely caused by several million exhaustees and others simply leaving the work force:

The actual unemployment rate is closer to 6.5%…..This explains why wages and labor costs have remained subdued despite the alleged 4.5% UE measure.

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