It All Started with an Argument

Understanding the current unemployment report

Note to readers: This is an updated version of an earlier post.

On Memorial Day 2023, my brother decided to push my buttons. He’s good at that. He told me that the unemployment numbers were wrong. He said, “none of my friends are being counted.”

I tried to explain that the numbers were an estimate, based on the monthly Current Population Survey (CPS). “Yeah, but they’re not working full time, and they want to be. They can’t get unemployment benefits.”

“That’s because they’re employed.”

We wrangled for a while, and then he said, “Well, if we had a real economist here, we could ask them.” My son nearly jumped out of his chair to come to my rescue.

Unlike my brother’s friends, my husband worked full time until retirement.

He never was unemployed. [1]

I wasn’t so lucky, partly because like many women, I “stopped out” of the labor force while my children were babies and again at that soccer mom age. It was difficult to get back into the labor market. But I had a secret weapon.

Many Americans become unemployed for short or long spells of time. Since we’ve finished our Crash Course on Inflation, I wanted to use this as a jumping off place for our study of the labor market and unemployment.

Let’s start with a quiz. (We’re going to use these six people in future posts.)

Who is unemployed?

Which of the following (fictionalized) people is unemployed?

1.              During the pandemic, Julia couldn’t find work and was a little intimidated by the idea of returning to work when so many people were still getting sick. She decided to retire and collect her social security benefits instead.

2.              During and after the pandemic, Jamie kept looking for work, taking any job he could get for as many hours as he can. He’s currently working for about 10 hours a week as a janitor for a small shop. Jamie keeps looking for a better job with more hours.

3.              Leanna collects her unemployment benefits, but instead of going back to work at her old job she’s decided to go back to school and get certified for a new career.

4.              Marcus, who has a college degree, looks for work each week, even though his unemployment benefits have run out. He’s young and geographically mobile.

5.              April was laid off her warehouse job after the collapse of the Francis Scott Key bridge. Her boss tells her that she’s on the recall list.

6.              Silvie was laid off from her job as an administrative assistant but hasn’t found work in over a year. She has her GED but finds it difficult to learn the computer skills she needs to find a decent job. She’s stopped looking, but she still wants to work.

Marcus and April are unemployed.

Unemployment is the inability to find work.

Marcus is unemployed because he fits the Bureau of Labor Statistics (BLS) definition of unemployment. What is the definition? The key to being counted, you have to have not worked (0 hours) and are actively looking. If you’re not looking, you’re not unemployed, even if you’re collecting unemployment benefits. The underemployed, like Jamie, are employed. [2] To be unemployed, you must be completely out of work and actively looking.

According to the BLS,

 “actively looking means that the unemployed worker is making one specific, active effort to find a job during the 4-week period ending with the survey reference week OR they were temporarily laid off and expect to be recalled to their job. People waiting to start a new job must have actively looked for a job within the last 4 weeks […] to be classified as unemployed.”

April expects to get her job back, so the fits into the second category. [3]

During our Crash Course on Unemployment, we’ll use three reports, two from the BLS and one from ADP. We’ll gather information from other sources as needed.

Unemployment

According to the BLS, unemployment is still low—4.2 percent.

When the Fed tightens the money supply and raises interest rates (current target is 5.25-5.75 percent), we expect to see higher unemployment rates. Compare this 4.2 percent rate to the unemployment rate (10.8 percent, November 1982) that occurred after the draconian interest rate hikes (to 19-20 percent on December 5th, 1980) preceding the recession of 1982-1983, for example.

In addition, compare 4.2 percent to the stable, non-inflationary rate, also called the natural rate, of 4.5 to 5.5 percent. (This range can vary, but historically this is what we’ve seen.) The interest rate hikes from March 2022 - July 2023 met a tight labor market, rather than the slack one of the late 1970s/early 1980s.

The pandemic-era labor market was tight. The number of positions open was greater than the number of unemployed looking and able to work, driving wages up. Prices shot up, particularly in the services sector.

During a period of high unemployment, such as the 2007-2009 recession, the labor market is loose and the number of those looking for work is greater than the number of openings. Wages will stagnate in response.

The rest of the story

My son’s response to my brother? “But we have a real live economist sitting right here!”

And my secret weapon? That PhD in economics I earned when I was thirty-eight.

Thank you for reading. I appreciate your support,

Nikki

Lament: I lost my first version of this post and had to redo it. Every writer’s nightmare.

[1] The fact gave rise to my favorite advice when I taught microeconomics, “Marry a nerd. They like to work.” In micro, we often talked about matching, a problem that arises in the labor market as well.

[2] The BLS collects unemployment data using several categories. One tracks this narrow definition I’m using (called U-3). Underemployed and discouraged workers are part of U-6. The two estimates closely track each other during the business cycle.

[3] Under the Port of Baltimore Emergency Assistance Program, April probably got her job back.