Janet Yellen, basically in the same vein of what I suggested here, used the broader unemployment measure, called the U-6 by the Labor Department, which was 11% in February to argue that the labor market is not that well in the US.
Note that U-6 is total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. And the number is very similar to my calculation of what unemployment would be if the participation rate had remained constant. One more reason not to hike the rate of interest any time soon.
I don't see anything of huge significance there. There is no hard and fast definition of unemployment: i.e. one can say "real" unemployment is as per the red line or as per the green line. What WOULD BE significant would be if the red line had risen relative to the green at any given level of unemployment. I DOES SEEM to have done that to a small extent over the last 15 years or so, but not to a dramatic extent.
ReplyDeleteActually it's central, since mainstream economists suggest that the natural rate is 5.5% and so we're at full employment. Showing that the labor market is weak provides support for not tightening monetary policy now.
DeleteWhy is the participation rate decreasing, though?
ReplyDeleteDo we know if it is due to discouraged workers, or is it due to baby boomers leaving the labor force? Or how much of it due to discouraged ones, and due to baby boomers?
I think the answer would matter a bit..
Given that U-6 looks similar the answer is clear. Also, older people, the boomers have been working longer. It is because the labor market sucks, and that isn't a cyclical phenomenon. It's structural.
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