Sunday, June 3, 2012

Clonal — Fred chart of U6

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Clonal:
The chart needs a bit of explaining. This is standard unemployed/underemployed that go into the u-6 plus all the people that are no longer in the work force because they cannot find employment.

Till 2000, the ratio of (people not in the work force)/(Total Labor Force) was steadily declining and had reached a figure of 48%, and this ratio had been declining since 1948. Suddenly, after 2000, this ratio has steadily increased. So id I subtract the low point from the ratio, I get the amount of adjustment needed for the U-6 to assume the same labor force participation that existed in 2000. I add this back to the U-6 to get my corrected U-6.
The decline in the ratio was obviously coming from the addition of increasing number of women to the work force.

The increase in the ratio can come from two possible sources.


1) An increase in perceived family wealth, so that one partner decides that it is no longer necessary to work.

or


2) People can no longer find a job, no matter how hard they try.


You be the judge as to which of the above two factors apply.

20 comments:

Clonal said...

The chart needs a bit of explaining. This is standard unemployed/underemployed that go into the u-6 plus all the people that are no longer in the work force because they cannot find employment.

Till 2000, the ratio of (people not in the work force)/(Total Labor Force) was steadily declining and had reached a figure of 48%, and this ratio had been declining since 1948. Suddenly, after 2000, this ratio has steadily increased. So id I subtract the low point from the ratio, I get the amount of adjustment needed for the U-6 to assume the same labor force participation that existed in 2000. I add this back to the U-6 to get my corrected U-6

Clonal said...

The decline in the ratio was obviously coming from the addition of increasing number of women to the work force.

The increase in the ratio can come from two possible sources.

1) An increase in perceived family wealth, so that one partner decides that it is no longer necessary to work.

or

2) People can no longer find a job, no matter how hard they try.

You be the judge as to which of the above two factors apply.

Tom Hickey said...

added your comments to the post. Let me know if you want anything changed or added.

Ken said...

I don't understand the reason for adding LNS15000000 ratio ... which appears to be the category "Not in the Labor Force" .... to the U6 number ... what are you trying to get at here?

According to BLS, this category is for "Persons who are neither employed nor unemployed are not in the labor force. This category includes retired persons, students, those taking care of children or other family members, and others who are neither working nor seeking work"

Anonymous said...

"and others who are neither working nor seeking work"

This is the trap, and why Clonal has modified it to historical ratios.

People is not seeking work because they are hopeless. Yes, that happens!

Anonymous said...

Just to tie it all together, I think a hat-tip is due to Matias Vernengo for the post that led to the above chart via the comments:

http://nakedkeynesianism.blogspot.com/2012/06/how-bad-is-unemployment-rate.html

Clonal said...

Ken,

To clarify your point, once you have exhausted your UI - Think of the 99 weekers - you are no longer considered to be a part of the work force and fall into this category. You are only seeking work as long as you are on UI - this is how the numbers are calculated.

Among these 99r's, you will find many between the ages of 62 to 68, who have been forced to go on Social Security because they could not find a job - though they would rather be working. Also, a similar thing afflicts younger workers (typically unmarried) who may take on student loans and go back to school, thinking that continuing education may help them find a job. Others just become sofa surfers, and bear the slingshots hurled upon them by "helpful" relatives and friends.

The ones with a poor social net become the "new" street persons

Ken said...

Not clear to me reading the BLS description that exhausting unemployment benefits outs you from U-6.

http://www.bls.gov/lau/stalt.htm

I agree there may be some undercount for the reasons you describe, but I think just adding that number to U-6 like you've done leads to a lot of double-counting if you look at U-6 definition, and also counts all the college students who had always planned to go to school, retirees who always planned to retire, etc.

I don't want to minimize the problem, which is very real, but I'm worried about techniques designed to produce the biggest number possible ... this is the kind of thing "shadow stats" does ...

Clonal said...

Ken the problem with measuring U-6 began in 2000=2001 the dot com bubble bursting. The problem is that we never recovered from the bursting of that bubble - the ratio clearly demonstrates that. We never got employment back on track after that.

See the graph of the ratio by itself http://research.stlouisfed.org/fred2/graph/?g=7JV and you will see the deramatic change that occurred then.

Ken said...

That may be true, but not sure it addresses my point ...

Clonal said...

Ken, you said:
that number to U-6 like you've done leads to a lot of double-counting if you look at U-6 definition, and also counts all the college students who had always planned to go to school, retirees who always planned to retire, etc.

So according to you, suddenly in 2000-2001 right after one of the most massive economic crashes, and in the dozen years afterwords, people suddenly woke up and said "I want to go to college!" "I want to retire!" - Is that what you are saying? The normal college attendence, and normal retirement was already a part of that declining trend.

All I am doing is adding back the numbers as if the trend reversal had not taken place (and the long term decline had flattened) - I am assuming that the trend reversal took place because of a lack of sufficient jobs.

Clonal said...

Also, as a corrollary to my previous arguments, th suicide rates have steadily increased since 2000, when they were at the bottom of a long 30 year decline.

Joblessness, hopelessness and suicide are intimately linked.

Ken said...

I don't know what happened in 2001 and have not had a chance to look into it. I'm just looking at definition of U6 and of the metric you added to it and it seems like you're double counting. It also seems like you're counting a bunch of people who don't belong there. Not saying there aren't people in school because they can't find job ... I am sure there are. But don't think most students in school right now fall into that category ... kids still go off off to college like they always have and I don't think it's legit to use them to jack up the numbers.

Tom Hickey said...

Ken, I would say that a correlation between a change in social behavior and an economic downturn suggests causation, especially if there is a pretty obvious causal mechanism. Doesn't prove it, but suggests that further research into this is advisable.

Ken said...

Tom ... maybe true ... but I think we need to be very careful about getting creative with the numbers ... we're already in an uphill fight with MMT ... don't want to give opponents extra ammunition. I see Warren Mosler has already picked this up.

Clonal said...

Ken,

What I am adding back are the workers who have stopped looking for a job. Not normal students or normal retirees. U-6 counts them all as being out of the work force. I am just assuming that the trend reversal was (and there are very good reasons for assuming this) because discouraged workers stopped looking for work, and hence dropped out of the work force. Thus there is no double counting at all.

Clonal said...

Look also at Matias Vernengo's article in a similar vein - How bad is the unemployment rate?

My methodology is quite similar to Vernengo's appled to U-6 instead of U-3

Ken said...

OK ... I think I see better where you're coming from now.

But I'm still not sure exactly who is and who isn't considered "not in the labor force" for purposes of the LNS15000000 series. For example, are the discouraged and marginally attached workers measured as part of U6 in or not in the force for purposes of LNS15000000?

Clonal said...

From the BLS

Quote:
Who is not in the labor force?

Persons not in the labor force are those who are not classified as employed or unemployed during the survey reference week.

Labor force measures are based on the civilian noninstitutional population 16 years old and over. (Excluded are persons under 16 years of age, all persons confined to institutions such as nursing homes and prisons, and persons on active duty in the Armed Forces.) The labor force is made up of the employed and the unemployed. The remainder—those who have no job and are not looking for one—are counted as "not in the labor force." Many who are not in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force.


In other words, "Not in Labor" does not include anybody that is counted in the U-6 - which is logical since U-6 has the "Labor Force" as the denominator in the U-6 calculation.

Ken said...

I read that, but investigating further, I am still not sure. For example, see here:

http://www.bls.gov/cps/cps_htgm.htm

A little more than halfway down ... under "Who is not in the labor force".

These questions form the basis for estimating the number of persons who are not in the labor force but who are considered to be "marginally attached to the labor force." These are persons without jobs who are not currently looking for work (and therefore are not counted as unemployed), but who nevertheless have demonstrated some degree of labor force attachment.

This implies that persons marginally attached are not "in" the labor force. But these persons are counted in U6.

So I'm thinking in/out of the labor force definition may be just in reference to U3.