Current unemployment numbers are misleading

Did you hear that the unemployment rate is 8.3 percent? You heard wrong. The real number is 22 percent. Photo: Associated Press

LOS ANGELES, August 20, 2012 ― Recent reports show that unemployment is increasing in almost all states. However, the official numbers reported by the Bureau of Labor Statistics (BLS) are very misleading. The 8.3 percent figure (called U-3) for last month does not include those who have become discouraged or are no longer seeking work.

John Williams from Shadowstats.com estimates that the real unemployment rate is around 22 percent. This is because his methodology incorporates long-term discouraged workers who were defined out of official existence in 1994. It also includes the official BLS U-6 unemployment rate, which includes short-term discouraged workers.

Politically it is much better for incumbents to cite the much lower U-3 figure. After all, it is easier to defend 8.3 percent than 22 percent when seeking reelection.

With all the political rhetoric involved concerning job creation it is important to understand the possible causes of unemployment. Here are several contributors worth considering:

Minimum wage laws make low skilled workers less attractive. In 2009, the minimum wage rose from $6.25 to $7.25 per hour. This made the productive worth of those earning more than $6.55 and less than $7.25 per hour a money-losing proposition for employers. 

Moreover, it prevented new job seekers with minimal skills from being hired at the new rate. This means that those who would have been employed at the lower market rate are now worse off.

Resources were misallocated during the boom. Boom periods cause investors and entrepreneurs to start an excess number of long-term projects with insufficient real savings to fund new investments.  

During the recession following the artificial boom period, resources need to get rearranged; certain projects need to be abandoned. As the economy corrects itself, excess jobs are shed since the contribution of the labor of some people is so low that it’s not worth it to hire them.

Unemployment has become a financial incentive. Unemployment benefits provided by the government have made it easier for job seekers to maintain unreasonable expectations. 

Some unemployment recipients have gotten comfortable receiving benefits without work and don’t have an incentive to look for jobs. They have gotten comfortable with their current level of income and are unwilling to work for less.

The Federal Reserve makes long term planning difficult. One of the Fed’s mandates is to promote maximum employment; however, it is doing so at the risk of high inflation. 

If there is a prevailing sentiment that the dollar is unstable businesses are prevented from planning long term, rather they are planning for short term instability in an attempt to protect current assets. This means that expanding employment opportunities are limited.

Government involvement in education has created a misallocation of degrees. The government’s push for education, similar to homeownership, has forced more people into attending universities at a high cost to the students.

While the market tries to clear away malinvestments, colleges continue to turn out an excessive number of degreed job-seekers in an already saturated market. This creates a condition of high debt, unemployment, and mal-employment (working jobs that don’t require college degrees) for college graduates. 

These factors combined suggest a grim picture: The real unemployment rate is almost three times what you thought it was; many people who would take jobs if they could find them have given up the job search; many college graduates are saddled with huge debts and are underemployed; a lot of people who could work are encouraged not to. 

Don’t look for any of this to change soon.


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Daniel Brackins

Daniel Brackins is a political scientist, libertarian philosopher, and proponent of the Austrian School of economics.   He is the president and founder of the Bastiat Institute, promoting free markets, liberty, and peace.  He is currently writing The Economic Origins of Morality, a book that argues that there is a universal moral principle rooted in the fundamental economic problem of scarcity.   

 

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