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Unemployment: How Do We Measure A Shortage Of Work?

Economics / US Economy Jan 23, 2009 - 06:16 AM GMT

By: Ronald_R_Cooke

Economics Best Financial Markets Analysis ArticleA Modest Proposal - According to the U. S. Department of Labor (DOL), employers cut 524,000 jobs in December, 2008. The seasonally adjusted unemployment rate increased to 7.2%. That’s bad news for a struggling economy. Unemployed people have fewer spending options. They tend to buy only what they absolutely need. Food tops the list. Rent or mortgage payments come next. Then utility bills, emergency medical expenses, and money for transportation – most likely in the form of car or truck payments and fuel. Purchases of clothing, a new car, electronics, toys, and so on can be deferred. Savings erode all too quickly. Personal confidence ebbs. Family life is strained.


But December’s unemployment numbers do not tell the whole story. It would appear the unemployment rate could exceed 10% before the end of 2009. And although media reporters and pundits like to focus on the unemployment rate as a benchmark for how bad things are, they are ignoring a far more important number.

Total unemployment plus under-employment.

Call it the Work Shortage Index (WSI).

Why is this number important? Aside from its use as a measure of human misery, it also gives us an indication of how many consumers are being forced to curtail their spending. The DOL attempts to provide an alternative measure of labor under-utilization in Table A-12, U-6. For December, 2008 “Total Unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force, plus all marginally attached workers was 13.5%”. If my math is correct: A total labor force of 154,349,000 persons X 13.5% = 20,837,000 “under-utilized” workers. From their point of view, there is a shortage of work.

I did my own WSI estimate. I wanted to know how many people were either unemployed or under-employed, wanted to work, and were available for work.* From a cultural perspective, these people – and their families – are experiencing a growing sense of personal tension that inevitably leads to frustration and anger. Historically, that has frequently led to momentous social change. In terms of economics, these people are not making enough money to sustain their potential (or usual) rate of consumption. In our current economy, the decline of consumer spending power is contributing to fixed asset depreciation, corporate contraction, and lower GDP.

Using DOL/BLS* A Table data, we start with a total labor force (age 16 or older) of 154,349,000 workers. Of this number:

9,468,000 are looking for full time work

1,531,000 are looking for part time work

That gives us a total unemployment figure of 10,999,000, or 7.1 %.

To this we add:

· 1,200,000 estimated number of people who have become discouraged and are no longer looking for work, or have been unable to find a job they able to take;

· 3,186,000 estimated number of people who usually work full time, but are working part time because they can not find full time employment;

· 1,562,000 estimated number of people who are working part time, but would like to find a full time job;

· 829,000 estimated number of self-employed persons who left the labor force in 2008 because they could not find work;

· 5,711,000 estimated number of self-employed persons who are unable to find enough work to keep them employed on a full time basis.

That gives a total of 23,487,000 unemployed or under-employed persons, and a Work Shortage Index of 15.2%.

Think about it. That’s over 23 million people, and their families, whose financial wellbeing has been restricted by a shortage of work. Worse, the longer the recession - the higher this index. As the recession drags on, employers tend to schedule fewer hours of work, place additional workers on part time employment, and find ways to eliminate jobs. Self-employed persons find it increasingly difficult to find productive work. And another key point: Under-employment increases faster than unemployment as earning power erodes.

If unemployment climbs above 10% in 2009, we can expect the Work Shortage Index to exceed 21.9%. Over 33.5 million Americans would be forced to sharply curtail their spending. Over 27% of all American households would be in financial trouble. Not only would that curtail consumer spending, it would also prolong our existing housing crisis and extend the depth of our existing financial crisis.

Counting noses to determine employment status is certainly useful. That’s the methodology used by the DOL/BLS to collect the unemployment data usually quoted by the media. But if we want to measure the economic impact of restricted spending, we need to find out how many hours people are actually working for money. For example, one may be tallied as being self-employed, but that in no way tells us if a self-employed person is actually making any money. Think of all the independent real estate agents, contractors, carpenters, electricians, health care workers – and so on, who are unable to find enough work that pays hard money.

These people are under-employed.

Conclusion

We can have a lively discussion about my methodology, but the basic thesis will not change. If we want to measure how a shortage of work impacts our economy, we should take a look at adding under-employment statistics to unemployment data.

*All data is from the January 2009 DOL/Bureau of Labor Statistics A tables, which are not corrected for seasonality

Ronald R. Cooke
The Cultural Economist
Author:  Detensive Nation
www.tce.name

Cultural economics is the study of how we interact with economic events and conditions. Culture, in this sense, includes our political systems, religious beliefs, psychology, history, customs, arts, sciences, and education. The term "Economics" refers to the extent and process of how we employ capital, labor and materials. If human existence is dynamic, then economics – as a science – must be able to characterize the interaction of culture and economics in contemporaneous terms.

Ronald R Cooke Archive

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