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Contrary to Alan’s Happy Talk in front of Congress, a new report from the Federal Reserve concludes that the current U.S. unemployment rate probably understates the true level of joblessness by as much as 3 percentage points or more.
Millions of potential workers who dropped out of the labor force since the recession began four years ago have not returned as expected and are thus not counted in the official unemployment statistics, said Katherine Bradbury in a paper published by the Boston Fed.
Labor force participation rates "have not recovered as much as usual and the discrepancies are large," she wrote. "Current low rates of labor market participation thus potentially represent considerable slack in the U.S. labor market," she wrote.
Some policymakers have argued that the economy is close to full employment with the jobless rate at 5%, thus justifying higher rates to pre-empt inflationary pressures from building in a tight labor market. While the official unemployment rate has fallen from a peak of 6.3% in June 2003 to 5% in June 2005, the labor force participation rate remains close to 15-year lows of 66%.
If those people were counted in the labor force but not working, the jobless rate would have been as high as 8.7%, rather than the 5.4% reported by the Labor Department in the months from November 2004 to February 2005.
Then there’s the matter of General Motors announcing the elimination of 25,000 jobs, Hewlett-Packard announcing the elimination of 14,500 jobs, Kodak announcing the elimination of 10,000 jobs, and Kimberly-Clark announcing the elimination of 6,500 jobs.
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Millions of potential workers who dropped out of the labor force since the recession began four years ago have not returned as expected and are thus not counted in the official unemployment statistics, said Katherine Bradbury in a paper published by the Boston Fed.
Labor force participation rates "have not recovered as much as usual and the discrepancies are large," she wrote. "Current low rates of labor market participation thus potentially represent considerable slack in the U.S. labor market," she wrote.
Some policymakers have argued that the economy is close to full employment with the jobless rate at 5%, thus justifying higher rates to pre-empt inflationary pressures from building in a tight labor market. While the official unemployment rate has fallen from a peak of 6.3% in June 2003 to 5% in June 2005, the labor force participation rate remains close to 15-year lows of 66%.
If those people were counted in the labor force but not working, the jobless rate would have been as high as 8.7%, rather than the 5.4% reported by the Labor Department in the months from November 2004 to February 2005.
Then there’s the matter of General Motors announcing the elimination of 25,000 jobs, Hewlett-Packard announcing the elimination of 14,500 jobs, Kodak announcing the elimination of 10,000 jobs, and Kimberly-Clark announcing the elimination of 6,500 jobs.
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