Unemployment: The Bad News About Your Job | Newsweek Voices - Daniel Gross

The Bad News About Your Job

Why the unemployment rate is artificially low.

PHOTOS

What About Us?

Wall Street's problems have captured the attention of Congress, the White House and the media. But on the country's Main Streets, worried workers, struggling small business owners and cash-strapped families are wondering if anyone is paying attention to them. A look at how Americans are coping with the economic crisis.

The Crunch: Video Stories From the Economic Downturn

Corporate America's Love of the GOP

How to Play Catch-Up On Retirement Investments

By Daniel Gross | Newsweek Web Exclusive

Oct 23, 2008

Email To A Friend

Please fill in the following information and we'll email this link.

It's hard to overstate the poor numbers coming out of Wall Street in recent months. But could it be that we're overstating the gravity of the situation? As job losses have mounted and consumer confidence has plunged, policymakers, news organizations, econo-pundits, and even some of my NEWSWEEK and Slate colleagues have noted that the unemployment rate, which rose to 6.1 percent in September, seems to be at a nonrecessionary, noncatastrophic, low level. The unemployment rate is still below where it was in 2003; and between September 1982 and May 1983, the last very deep recession, it topped 10 percent. (Go here for a chart and historical data).

But maybe the employment data are much worse than they seem. In the past year, the two key measures of employment-the unemployment rate and the payroll jobs figure-have been poor but not awful. The unemployment rate has risen from 4.5 percent a year ago to 6.1 percent. And in the first nine months, 760,000 payroll jobs were lost. This is unwelcome but not catastrophic. So why do things feel so bad? It's not because, as Phil Gramm suggested, we're a nation of whiners. And it's not a matter of columnists and spin doctors shading the numbers to make things look worse.

Rather, these two figures are undermeasuring the weakness in the labor market. By some measures, in fact, the job situation is worse than it has been at any time since 1994.

Here's why. Back in the 1990s, the Bureau of Labor Statistics recognized that in a changing economy, in which outsourcing, self-employment, and contracting were becoming more commonplace, the traditional methods of measuring unemployment and job growth might not accurately portray the economic situation. And it knew its methodology had some quirks-the unemployment rate doesn't account for people who have given up looking for jobs, or who have taken themselves out of the work force. So since 1994, the BLS has been compiling alternative measures of labor underutilization. There are many different varieties of labor underutilization. There are marginally attached workers: "persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past." There are discouraged workers, a subset of the marginally attached crowd, who have "given a job-market related reason for not looking currently for a job." There are people who work part-time because they can't find-or their employer can't provide-full-time work. There are people who have left the work force entirely. Neither the unemployment rate nor the payroll jobs figure captures the plight of many of these folks.

And the alternative labor underutilization measures show a lot of stress. The data on people not in the work force show the number of people not looking for work because they're discouraged about finding jobs has risen from 276,000 in September 2007 to 467,000 in September 2008-up 70 percent. The percentage of people unemployed for more than 15 weeks stood at 2.3 percent in September 2008, up from 1.6 percent in September 2007, a rise of nearly 45 percent. But the most troublesome is the U6. The U6 is sort of the summa of job angst, a shorthand tally for the aggregate of job-related frustration. (Moneybox covered some of this terrain back in 2004 .) To compile the U6, the BLS takes the number of unemployed, plus all marginally attached workers, plus all of those employed part-time for economic reasons, and then calculates that total as a percentage of the sum of the entire civilian labor force plus marginally attached workers.

The U6 in September rose to 11 percent, its highest level since the data series started in 1994 and significantly higher than it was in the last recession, in 2001. The ratio between the U6 and the official unemployment rate has remained relatively steady over the last several years. But that means that as the unemployment rate has risen, so too has the portion of the population suffering from other types of work deficits. Three years ago, when the unemployment rate was 5.1 percent, an additional 3.9 percent of the labor force fell into one of those other underutilized categories. Last month, with the unemployment rate at 6.1 percent, an additional 4.9 percent of the labor force was underutilized. (See charts comparing the unemployment rate and the U6 rate.) Add it up, and more than 10 percent of American workers are essentially not contributing full-time to their families' well-being and to that of the economy at large. The unemployment rate may still be historically low, but the underutilization is historically high.

The Kennedy tax cut.

http://www.heritage.org/Research/Taxes/bg1765.cfm

About half way through the article.

"President Kennedy proposed massive tax-rate reductions, which were passed by Congress and became law after he was assassinated. The 1964 tax cut reduced the top marginal personal income tax rate from 91 percent to 70 percent by 1965. The cut reduced lower-bracket rates as well. In the four years prior to the 1965 tax-rate cuts, federal government income tax revenue--adjusted for inflation--increased at an average annual rate of 2.1 percent, while total government income tax revenue (federal plus state and local) increased by 2.6 percent per year . In the four years following the tax cut, federal government income tax revenue increased by 8.6 percent annually and total government income tax revenue increased by 9.0 percent annually. Government income tax revenue not only increased in the years following the tax cut, it increased at a much faster rate.
The Kennedy tax cut set the example that President Ronald Reagan would follow some 17 years later. By increasing incentives to work, produce, and invest, real GDP growth increased in the years following the tax cuts: More people worked, and the tax base expanded. Additionally, the expenditure side of the budget benefited as well because the unemployment rate was significantly reduced.
Using the Congressional Budget Office's revenue forecasts (made with the full knowledge of the future tax cuts), revenues came in much higher than had been anticipated, even after the "cost""of the tax cut had been taken into account. Additionally, in 1965--one year following the tax cut--personal income tax revenue data exceeded expectations by the greatest amounts in the highest income classes.
Testifying before Congress in 1977, Walter Heller, President Kenned''s Chairman of the Council of Economic Advisers, summarized:
What happened to the tax cut in 1965 is difficult to pin down, but insofar as we are able to isolate it, it did seem to have a tremendously stimulative effect, a multiplied effect on the economy. It was the major factor that led to our running a $3 billion surplus by the middle of 1965 before escalation in Vietnam struck us. It was a $12 billion tax cut, which would be about $33 or $34 billion in today's terms, and within one year the revenues into the Federal Treasury were already above what they had been before the tax cut.
Did the tax cut pay for itself in increased revenues? I think the evidence is very strong that it did."

Member Comments

- Reply
- Report Abuse
Posted By: Nowforsomemoretruth @ 11/01/2008 10:59:28 PM

The problem with Obama is a simple one. One association does not a radical make. But in Obama's case, the list of left-wing radical mentors and associates is seemingly endless, (Davis, Ayers, Wright, Khalidi , etc., etc.) with a new revelation practically every day. With that, a picture begins to emerge, and that picture is that Obama is as steeped, not in just left-wing political thought, but in radical left-wing and race ideology, to the same extent that Pat Robertson was steeped in the ideology of the radical Religious Right. I would not have voted for Pat Robertson for dog catcher, and for similar reasons, I will not vote for Obama.
- Reply
- Report Abuse
Posted By: Nowforthetruth @ 10/27/2008 8:17:08 AM

http://www.youtube.com/watch?v=iivL4c_3pck

2001 Chicago Public Citizen Radio Interview criticizing the Warren Court as not radical enough for not pursuing redistribution of wealth.

Says that community organizing is for the purpose of assembling the political power to force redistribution of wealth.
- Reply
- Report Abuse
Posted By: Nowforthetruth @ 10/26/2008 9:37:43 PM

The Kennedy tax cut.

http://www.heritage.org/Research/Taxes/bg1765.cfm

About half way through the article.

"President Kennedy proposed massive tax-rate reductions, which were passed by Congress and became law after he was assassinated. The 1964 tax cut reduced the top marginal personal income tax rate from 91 percent to 70 percent by 1965. The cut reduced lower-bracket rates as well. In the four years prior to the 1965 tax-rate cuts, federal government income tax revenue--adjusted for inflation--increased at an average annual rate of 2.1 percent, while total government income tax revenue (federal plus state and local) increased by 2.6 percent per year . In the four years following the tax cut, federal government income tax revenue increased by 8.6 percent annually and total government income tax revenue increased by 9.0 percent annually. Government income tax revenue not only increased in the years following the tax cut, it increased at a much faster rate.
The Kennedy tax cut set the example that President Ronald Reagan would follow some 17 years later. By increasing incentives to work, produce, and invest, real GDP growth increased in the years following the tax cuts: More people worked, and the tax base expanded. Additionally, the expenditure side of the budget benefited as well because the unemployment rate was significantly reduced.
Using the Congressional Budget Office's revenue forecasts (made with the full knowledge of the future tax cuts), revenues came in much higher than had been anticipated, even after the "cost""of the tax cut had been taken into account. Additionally, in 1965--one year following the tax cut--personal income tax revenue data exceeded expectations by the greatest amounts in the highest income classes.
Testifying before Congress in 1977, Walter Heller, President Kenned''s Chairman of the Council of Economic Advisers, summarized:
What happened to the tax cut in 1965 is difficult to pin down, but insofar as we are able to isolate it, it did seem to have a tremendously stimulative effect, a multiplied effect on the economy. It was the major factor that led to our running a $3 billion surplus by the middle of 1965 before escalation in Vietnam struck us. It was a $12 billion tax cut, which would be about $33 or $34 billion in today's terms, and within one year the revenues into the Federal Treasury were already above what they had been before the tax cut.
Did the tax cut pay for itself in increased revenues? I think the evidence is very strong that it did."