Unemployment Rates

Recently, the government released the latest unemployment statistics and the numbers were not good. Currently, our nation has an unemployment rate of 5.7% (economists were expecting 5.6%). This was the seventh straight month of increasing unemployment and it is also a 4 year high. These are not good statistics considering the rising costs of living (fuel, food, etc) and the dropping value of housing investments. An increasing amount of people are actively searching for replacement jobs during a downturn in our economic standing. It’s not a good mix. Businesses are actively tightening their cash straps while more are people out of work and looking for new jobs to sustain their lives.

Does the 5.7% scare us or is it just another economic indicator creating a buzz around our stock market? Is it affecting the people with jobs in our economy? Is 5.7% a bad number compared to our nation’s history? Let’s try and answer a few of these questions and see just how important the unemployment figure is to each and every one of us. The unemployment rate is a number that is more like a guesstimate. It does not include people who are voluntarily without work and are not actively searching for work. Also, it does not include part time workers in our economy. The government, when tacking on these additional “jobless” workers, the rate becomes 10.3% (breaking 10% for the first time since November 2003). Even then, it’s a guess because you cannot truly measure the amount of workers who are not currently searching for jobs. Many people have become discouraged looking for work and this segment of society is extremely hard to quantify.

Our past history, since 1948, shows that we have a historical average of 5.6% unemployment. Theoretically, we are sitting right around the average level for our country so 5.7% shouldn’t be thought of as bad should it? As a note, the government is projecting 6.0% unemployment for January 2009 (we are heading the wrong way as if the seven month increase didn’t answer that). Let’s think of it outside of percentages and in terms of real numbers. In the 1940’s, our country’s population was about half of where we stand now. Let’s say 60% of the population is between 18 and 65, rough guesstimate. That gives us about 90 million workers based on 150 million population. 5.7% would equal about 5.1 million unemployed workers based on average. Today, with 300 million people, that would be double that, over 10 million people without work. So yes, we are at our history’s average of unemployment, but we have roughly double the total amount of people without work.

With 10 million people unemployed (and quite possibly closer to 20 million if we use the 10.3% statistic), does that hurt the people currently employed? Sure it does. Assuming we use the average wage for each unemployed person, that is the removal of about $350 Billion from our economy. That’s a pretty large chunk of change if I say so myself. Minus this potential revenue from our economy, businesses will suffer lower sales and thus, lower profits. Declining profits for businesses eventually leads to cost cutting and the number one cost cutting maneuver known to American businessmen is decreasing employment levels. Just ask the workers in the car manufacturing industry. So yes, the unemployed can directly impact your employment status. That means even when you’re happily employed, you should care about these numbers.

Maybe you have heard somewhere along the lines the term “natural unemployment.” Economists have theorized that in an economy, there will always be people unemployed for a wide variety of reasons. Thus, you cannot expect to have 100% employment in any situation. This natural unemployment number has been theorized to be around 4%, or lower. When we are running extremely “low” unemployment rates around the 3-4% range, we hear good things about how efficient, how productive, and how our economy is humming along because we have “assumed” the unemployment rate is a residual of a working economy. However, even at 4%, that still means we have about 7 million people out of work. Voluntary or not, that is a number to be concerned about.

I believe a better way to look at unemployment would be to include a couple of different statistics. First off, what is the average length of time our employed people have at their current job? Secondly, what was the average time between jobs for our unemployed job searcher? And lastly, upon finding the new job, was there a decrease /increase in pay and was there a need to relocate? If we can combine the data from the above with the current unemployment rate, we would have a much clearer view into how our economy is “humming along.” Employed doesn’t always mean gainfully employed.

The next time you hear a report from the government announcing the unemployment rate, be concerned because it affects every one of us. Don’t fall victim to the rationalizing economist who says there is an “accepted” level of unemployment in our economy. Yes, I know there will always be unemployment, but it is not always acceptable. Unemployed people must still survive and in the end, our taxes will pay for a portion of this “acceptable” level of unemployment. 5.7% is bad and we are heading in the wrong direction as the government forecasts shows. Unemployment carries with it a cost we all pay for in the end.

Citation: US Government Department of Labor & http://money.cnn.com/