Tuesday, August 31, 2010

Unemployment and the Innumerate Left

Harvard economist Robert Barro explains the political folly of subsidizing unemployment in The Wall Street Journal:
To get a rough quantitative estimate of the implications for the unemployment rate, suppose that the expansion of unemployment-insurance coverage to 99 weeks had not occurred and—I assume—the share of long-term unemployment had equaled the peak value of 24.5% observed in July 1983. Then, if the number of unemployed 26 weeks or less in June 2010 had still equaled the observed value of 7.9 million, the total number of unemployed would have been 10.4 million rather than 14.6 million. If the labor force still equaled the observed value (153.7 million), the unemployment rate would have been 6.8% rather than 9.5%.

Consider how the prospects for Democrats in the November elections would look if the unemployment rate were now only 6.8%. Obviously, this change would make all the difference, and President Obama can reasonably blame his economic advisers. They should have protected their boss by standing firm and arguing that a reckless expansion of unemployment-insurance coverage to 99 weeks was unwise economically and politically. Congressman Boehner's advice to Mr. Obama seems correct, though possibly too late to matter.
The first thing I look at in the monthly BLS Employment Situation report is the number of discouraged workers. Most news organizations ignore that number, so the general public doesn't understand its importance. In Barro's hypothetical the discouraged worker number would be much higher—perhaps we would even see a month-to-month million plus bump in that number. That's not the sort of thing that would go unreported in the New York Times. Then the issue would be how a public suddenly familiarized with the concept of discouraged workers would react. I'd say it might not be any worse that the 9.5% unemployment rate we now have.

The employment-to-population ratio is a much better metric than the unemployment rate. It's not as easily (or foolishly) gamed.

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