Brother, Can You Spare a Dime?
Since we have the luxury of a full time economist on our Board of Advisors, I followed up with Jared Bernstein after reading the following in today’s Wall Street Journal article about the February jobs report:
“U.S. recession fears mounted as employment fell in February at its fastest rate in five years, suggesting that the housing and credit crunch is gripping the broader economy. U.S. nonfarm payrolls fell by 63,000 in February, after declining 22,000 in January. If not for a rise in government jobs last month, payrolls would have fallen by more than 100,000. However, the unemployment rate dropped to 4.8% from 4.9%.
To learn more about the factors behind the job loss, read Jared’s article today on the Economic Policy Institute site. The question that jumped out at me after reading the Wall Street Journal article was how can it be that unemployment rates would fall in conjunction with two consecutive months of job loss in the US?
Jared pointed me to an article in the New York Times, “Unemployed, and Skewing the Picture”, that illuminates this issue. Evidently, this disconnect is due to the somewhat wacky way the Bureau of Labor Statistics defines unemployment – a method that dates back to the panic of 1873. At that time, seeking to moderate the publically reported high unemployment statistics, then Chief of Massachusetts Bureau of the Statistics of Labor Carroll D. Wright instructed surveyors to only count those men willing to take any job offered. This excluded those holding out for employment at equivalent wages to their past employment – the “nonemployed”. This also made the unemployment statistics a lot rosier.
One hundred thirty-five years later, we can see the same phenomenon at work. Formerly employed workers whose jobs have been eliminated or moved offshore may hesitate to accept employment at much lower wages – and may eventually stop looking. While the war for talent may be raging on some fronts, the invisible nonemployed are certainly among the casualties of the ongoing economic slowdown.