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

2. Unemployment rate – 6 degrees of separation

3. 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.

4. Current data on the six U’s (January 2016)

5. Shadow stats – add in long term discouraged workers with U-6…
1/2016
22.9%

6. But … what exactly is a “discouraged” worker?

7. Moral Hazard & unemployment insurance.
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.
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.”
Depositors flock to Lincoln S&L to earn high rates of interest on sketchy loans because of the FDIC.

8. 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.

9. Moral Hazard (con’t.)
1/2016
27.6 wks.

10. 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.

11. 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.”
Furor “over the extension of unemployment benefits … has derailed discussion of policies aimed at direct job creation.”

13. < 5 weeks
> 26 weeks
5-14 weeks
15-26 weeks

14. Looking at “employment”, 2000-2016 Average Growth = 0.23% per year!!!
149
146
From Jan to Jan. 2016, jobs are up 3 million … but population is up 23 million!!!
Average Growth = 0.23% per year!!!

15. The Labor Force Participation Rate
= (#Labor Force)/(#Civilian Population)
1/2016
62.7%

16. Age and LFPR

17. Male/Female LFPR

18. BLS forecast for LFPR to 2022

19. Unemployment & the LFPR

20. Interpreting the Ur rate.
It understates unemployment
Disguises underemployment.
Discounts discouraged workers.
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%!!!

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