Monday, April 16, 2012
- Turn That (Unemployment) Chart Upside Down
I've gotten the impression from past conversations, that the "unemployment rate" is one of those things that the general population thinks Economists make more complicated than it has to be. "Just tell us what the rate is!" I've had people say to me.
The truth is, it's not that easy, but until very recently, no one was interested. Now everyone seems to be aware that there are birth/death issues, seasonality adjustments etc. And while those issues are designed to add accuracy (and do if responsibly used), in the current environment they just distort the real economic activity.
The point I most mean is the "labor force participation" statistic. The idea is that when someone is unemployed but is no longer looking for a job, they are not providing any additional "demand for work" (technically it's "supply of labor") so they must be removed from the pool. In literal terms this makes sense, but is easily distorted.
I think this zerohedge post goes a long way toward illustrating the problem, and the way the distorting effect of the reporting method that has crept in over time.