Monday, February 20, 2012

Not the truly unemployed

John Hayward has a good explanation of why the official unemployment rate undercounts the true level of unemployment, but his replacement is seriously flawed. He says that the true unemployment rate is 36.3 percent, which is simply 100 minus the labor-force participation rate.  For one, he is subtracting the wrong thing.  What matters is the rate of employment (the employment-to-population ratio).  By subtracting the labor-force participation rate he is leaving in millions of people who are not employed but are looking for work (i.e., the officially unemployed).

Also, as a matter of semantics, what he's looking for should probably be called the nonemployment rate. To be unemployed suggests that you were employed and no longer are.  But then why not just use the employment-to-population ratio?