Now that the Debt Ceiling debate has been laid to rest for the time being, the politicians are in full campaign mode for the 2012 general election. The President of course has his job cut out for him. The economy is still shaky and the markets are volatile. A few months back, the economist had officially declared the recession over. There are several metrics that economists look at to consider whether the economy is growing or receding. The most important metric, of course, is growth in GDP. There are other metrics such as new housing, Manufacturing activity etc. In this Great Recession, however, the focus has been on unemployment. While each recession is unique, the severity of the unemployment numbers is never that bad, except during the Great Depression of the late 20’s. For instance, the peak unemployment in the post 9-11 recession was 6.3%. In this recession, the peak has been 10.1%. See the chart below.
There is such a thing as the Natural Rate of Unemployment. This theory was propounded by Milton Friedman. According to him, there is a natural rate of unemployment in a given economy, given the supply and demand of labor situation. If the unemployment goes lower, there is risk of inflation which can lead to other economic issues. The natural rate is not constant, but has hovered around 4% in the recent past. Which means our current unemployment at 9.1% is way high. Overall Unemployment But it gets worse. The department of labor also keeps statistics on more than just unemployed people. While the unemployed are looking for a job, there is another set of people who have given up looking or have taken up part time jobs to make end meets. The official unemployment figures do not include the underemployed. The chart below provides the breakdown of the actual unemployment including the underemployed. As of July 2011, the US has an employment of 16.1%.
Data for this chart is available at the BLS web site.
Duration of Unemployment The BLS issued a paper that discusses how long people stay unemployed. The chart below depicts that more and more people are taking longer to find jobs than before. Data for this chart is available in this file.
High Unemployment is a thorny metric for everyone. With high unemployment – 1. Tax Receipts go down. 2. Less Goods and Services are being produced and consumed. 3. The Government has to pay Unemployment Insurance benefits 4. There is less money in the system for new investments A Note on the Data used in these charts. The Department of Labor conducts a monthly survey of 60,000 respondents. The purpose of the survey is to determine the employment status of the individuals. The results are extrapolated to the overall population using sophisticated statistical techniques. The results are then posted on the Bureau of Labor Statistics (BLS) web site. There are numerous tables available on the BLS web site related to Unemployment.