In Depression Terms, Jobless Rate At 16.5%
By Justin Gardner | Related entries in Economy, History, Jobs
There seems to be a lot of resistance to the idea of a stimulus package because the employment numbers aren’t nearly as bad as those during The Great Depression.
But you have to look at the numbers in a historical context if you want to understand the entire story.
Figures collected for Reuters by John Williams, from the electronic newsletter Shadowstats.com, suggest that, while we are not there yet, the comparison is not as outlandish as it might initially seem.By his count, if unemployment were still tallied the way it was in the 1930s, today’s jobless rate would be closer to 16.5 percent — more than double the stated rate.
“I expect that unemployment in the current downturn, which will be particularly deep and protracted, eventually will rival, if not top, the 25 percent seen in the Great Depression,” Williams said.
He and other critics have one particular sticking point with the current way of measuring unemployment: the treatment of discouraged workers.
Under President Lyndon Johnson, the government decided individuals who had stopped looking for work for more than a year were no longer part of the labor force. This dramatically decreased the jobless rate reported by the government.
“Both part-time workers wanting full-time work and discouraged workers tend to make the unemployment rate lower than it would otherwise be,” says Robert Schenk, professor of economics at St. Joseph’s College, Indiana.
So this is why we have to look at the current situation with extra scrutiny. Because the numbers have essentially been gamed for the past 40 years and that has to be considered.
There’s no doubt that employment numbers were worse than we thought during times of prosperity, but now we’re in a particularly difficult situation and so the numbers during the Depression need to be recognized and compared to provide a more accurate assessment of this ongoing predicament.
This entry was posted on Saturday, January 10th, 2009 and is filed under Economy, History, Jobs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
January 10th, 2009 at 2:47 pm
There’s no doubt that the current recession is a tough one and likely will be the worst since 1982. It’s even possible that it will be the worst since the Great Depression, but even if it were, it would be highly unlikely to approach the Depression in scale, scope or duration.
Unemployment numbers can be confusing, because of definitions — who’s unemployed, underemployed, looking for work, losing overtime, etc. And are we talking about people over 16? People who wanted p/t work before and want p/t work now? Etc.
Actually, the government numbers on unemployment include lots of data points, describing various employment characteristics, including some of the above, but the one number that’s used most in discussion for purposes of comparison to past years is the overall percentage. There are some problems with precise historical comparisons, but the notion that these summary data have been “gamed” since the 60s and can’t fairly be used for comparisons to the 1930s doesn’t withstand scrutiny.
The Bureau of Labor Statistics constructs the unemployment picture using data from the Census Bureau’s monthly Current Population Survey. It has used the same basic methodology since 1940, with a half dozen significant changes in specific methods made from 1945 to the 90s. The changes under LBJ that the linked story spotlights did not suddenly introduce the concept of “actively looking for work” into the definition of unemployed. The concept was there all along; the 1967 change introduced into the CPS more specific questions about work-seeking activity over 4 weeks in place of fuzzier questions asked previously.
(see http://www.bls.gov/cps/eetech_methods.pdf). The changes were made to sharpen the data, not to game them.
In any case, none of the BLS/CPS data published since 1940 can be directlty compared to 1930s data, because unemployment data had not been fastidiously collected with any consistent methods in the 1930s. The approach formalized in 1940 was developed during the late 1930s (see http://www.bls.gov/opub/hom/homch1_a.htm).
So one can say that no one’s data — not from BLS, and not from “alternative” source like Shadowstats — can be directly compared to unemployment during the Great Depression. The best numbers we have for the Depression period were developed and refined under the auspices of, among others, the National Bureau of Economic Statistics. That’s where we get those startling numbers above 25% (in fact, unemployment peaked above 35% (!) in 1933, according to NBER).
Even if one were to believe that BLS data before and after 1967 doesn’t accurately portray unemployment, due to definitional issues, the fact remains that there are similar definitional issues with the 25% and 35% numbers we use for the Great Depression. In short, various forms of underemployment may have existed on top of the 25-35% unemployment.
Fortunately, we’re not dependent on employment data alone to compare then to now, According to the NBER, US real GDP declined 27% between 1929 and 1933, the years of deepest depression (but not the only years of decline in the 30s) — or about 10 times the decline experienced in the next worst post-war recession.
So far in our current recession, defined by NBER as having started in December 2007, real GDP increased in the first two quarters of 2008 and declined 0.5% on an annualized basis in the third quarter. Most analysts believe that GDP shrank far more sharply in the fourth quarter (probably in the 4-5% annualized range), which would mean a contraction of about 1.5% for the full year. Most analysts expect another quarter or two of significant contraction in the 4-6% range followed by a gradual recovery in the second half of 2009. Even if every forecaster is off by half, the likelihood is that this recession will lead to a cumulative GDP decline of perhaps 5%, not 27% (and that figure was just for the four years, 1929-33).
We’re in for a rough time, but comparisons to the Great Depression don’t hold any water.
January 11th, 2009 at 1:19 pm
I think looking at employment rates tells more than the unemployment rate. As the previous poster indicated the unemployment rate includes a number of issues that make it highly subjective; having said that the comparison to previous rates is certainly telling.
When the last serious recession started in July, 1981, the unemployment rate rose from about 7% to 10.8%; when the current recession started in December, 2007 the unemployment rate was 5% and is now 7.2%. Aruguably, if the recession causes the rate to rise to the 9%+ range, this will be a much more severe recession; I personally seen a rate rivaling, if not surpasing the 1981-1982 recession.
Employment rates in the US and the EU are surprsingly close even though the unemployment rate in the US is traditionally much lower; most of this accounted for by the different way unmeployment is calculated.
January 11th, 2009 at 7:43 pm
Here’s 3 job sites from about.com’s top ten job sites-
http://www.linkedin.com (professional networking)
http://www.indeed.com (aggregated listings)
http://www.realmatch.com (matches jobs based on your skills)
good luck to those looking.
February 4th, 2009 at 12:43 am
I agree. This may be the worst crises since the Great Depression but this is not even close to the great depression. Suzie Orman may be wrong in saying that it is comparabe to the great depression. Our advantage today is that our financial leaders have learned their lessons from the great depression and certain mechanisms are in place to prevent that from happening again.