Unemployment: Issues & Concerns Dr. D. Foster – ECO 285

Unemployment rate – 6 degrees of separation

So, then, what exactly is the Ur? But, the various series do move together. So, while we can’t say what Ur is, we seem to be able to say whether it is going up or going down.

Current data on the six U’s (January 2015)

Shadow stats – add in long term discouraged workers with U-6… 1/ %

But … what exactly is a “discouraged” worker?

Moral Hazard & unemployment insurance. Moral HazardOne party to a contract changes their behavior that adversely affects the other party. Moral Hazard: One party to a contract changes their behavior that adversely affects the other party. Examples: Ben Roethlisberger signs a big contract and then rides a motorcycle without a helmet. Ben Roethlisberger signs a big contract and then rides a motorcycle without a helmet. A bank makes a home loan to someone working who then quits. A bank makes a home loan to someone working who then quits. AIG buys lots of sub-prime home loans because they know that they are “too big to fail.” AIG buys lots of sub-prime home loans because they know that they are “too big to fail.” Depositors flock to Lincoln S&L to earn high rates of interest on sketchy loans because of the FDIC. Depositors flock to Lincoln S&L to earn high rates of interest on sketchy loans because of the FDIC.

Moral Hazard & unemployment insurance. UI benefits had been limited to 26 weeks. Benefits extended to 99 weeks. San Francisco Fed chart showing % of labor force unemployed for 6 months or longer: Big jump in long term Ur with this extension. Moral hazard? 2014 – efforts to extend by 3 months fails.

Moral Hazard (con’t.)

The CBO (Congressional Budget Office) CBO estimates that extending emergency unemployment benefits would … increase … the duration of unemployment for some people. Specifically, in response to the extension of benefits, some unemployed workers who would be eligible for those benefits would reduce the intensity of their job search and remain unemployed longer—which would tend to decrease output and employment.

A tale of 2 surveys – can’t we just all get along? Household survey – 60,000 HH per month, yields Ur. Payroll survey – 390,000 firms per month, yields jobs. BLS adjusts the HH survey to “better match” payroll data. But, Ur is most widely watched indicator. Issue: Ur is too discretionary & unreliable: affected by assumptions regarding the character, motives or incentives facing the unemployed “affected by assumptions regarding the character, motives or incentives facing the unemployed.” over the extension of unemployment benefits … has derailed discussion of policies aimed at direct job creation Furor “over the extension of unemployment benefits … has derailed discussion of policies aimed at direct job creation.”

< 5 weeks 5-14 weeks weeks > 26 weeks

Looking at “employment”, From Jan to Jan. 2015, jobs are up 2.1 million … but population is up 19.8 million!!! Average Growth = 0.18% per year!!!

The Labor Force Participation Rate = (#Labor Force)/(#Civilian Population) 1/ %

Age and LFPR

Male/Female LFPR

BLS forecast for LFPR to 2022

Unemployment & the LFPR

Interpreting the U r rate. It understates unemployment underemployment Disguises underemployment. discouraged workers Discounts discouraged workers. marginally attached It discounts other marginally attached workers. It overstates unemployment Includes moral hazard effect to collect benefits. Based on HH survey versus payroll survey. Builds in assumptions about motivation. Even with adjustments, est. rate from 3% to 22%!!!

Unemployment: Issues & Concerns Dr. D. Foster – ECO 285