(This post is based on notes for remarks to a group of college students last Saturday)
As you know, jobs are probably the biggest issue in the economy, the election, and your personal lives. This may be a teachable moment because the October jobs report came out yesterday and is featured in today’s headlines.
The headlines said is that payroll employment increased by 171,000 jobs in October and that the unemployment rate increased slightly to 7.9 percent, representing 12.3 million people. Furthermore, the payroll numbers were revised up by 50,000 in August and by 34,000 in September.
Job growth has improved recently, but is still below the rate of past recoveries. Let me give you some historical context:
The number of employed people dropped dramatically during the 18 month recession in 2008 and the first half of 2009, and for several months thereafter.
The recovery (in GDP) officially began in June 2009, but it has been an unusually slow recovery, with job growth even slower. We lost almost 9 million jobs in 2008-09, and we have only gained about half of them back so far.
Before the recession, the unemployment rate averaged less than 5 percent. It peaked at 10 percent in late 2009, and, from there, has declined to 7.9 percent as of mid-October 2012. It is still about 3 percentage points above what would reasonably be considered normal or full employment.
The overall employment situation, however, is actually worse than these numbers portray. Not only is unemployment as a percent of the civilian labor force high, which is what I’ve been talking about, but the labor force itself has been shrinking as job seekers give up and drop out. The labor force participation rate—employed people plus unemployed people actively looking for a job—has declined by almost 3 percentage points from 66 percent before the recession to 63.8 percent last month. Furthermore, total employment, as a percentage of the total population, has declined from over 63 percent before the recession to 58.8 percent in October.
The government publishes a separate unemployment rate, called the U-6, which adds to the official unemployment rate people who became discouraged and quit looking and those otherwise marginally attached to the labor force, such as working part time when a full-time job is preferred. The U-6 unemployment rate for October was 14.6 percent.
As students, you should keep in mind that all these numbers are estimates based on samples, which are thus subject to sampling error (as well as other types of errors).
The payroll number comes from reports submitted by 141,000 business establishments and government entities representing about 486,000 workers. That sample size means, statistically, that, at the 90 percent confidence level, the “real” or “true” payroll change is the estimated number plus or minus 100,000, or, in October, between 71,000 and 271,000. A larger sample size would narrow that range by reducing the sampling error.
The unemployment rate is derived from a separate survey of households, which has an even smaller sample size and thus a wider confidence range. The household survey is a survey, mostly by phone, of about 60,000 households, whose members answer several questions to determine their employment status. Questions like: Are you currently employed? If the answer is yes, the responder is considered in the labor force and employed. If the answer is no, the responder is asked if they have actively sought employment in the past 6 weeks? If the answer is yes, the respondent is considered in the labor force, but unemployed. If not, they are considered not part of the labor force, and are not counted as unemployed.
Because the household survey’s sample size is smaller than the establishment survey, it’s confidence range is larger. At the 90 percent confidence level, the “true” number of unemployed persons is the estimated number plus or minus 280,000, and the “true” unemployment rate is the estimated rate plus or minus 1.9 percentage points. Thus, the estimated unemployment rate of 7.9 percent in October means that, at the 90 percent confidence level, the “true” unemployment rate was between 6 percent and 9.8 percent.
The unemployment numbers can be sliced and diced several ways. For example, unemployment rates are higher for minorities than non-minorities. They are higher for teenagers than for adults. The teenage unemployment (16-19 year olds) was 23.7% in October. The rate for adult men and adult women (20 years and over) was 7.3 and 7.2 percent respectively.
The duration of unemployment has been longer than in past recoveries. In October, 5 million people had been unemployed over 27 weeks. That’s just over 40% of the 12.3 million people unemployed.
The length of the work week last month averaged 34.4 hours while average hourly earnings were $23.58, or $811.15/week.
As students, the unemployment breakdown most relevant to you is probably education levels. Compared to an overall average of 7.9 percent, here are the unemployment rates by education level:
Less than a high school diploma 12.2%
High School Graduates (no college) 8.4%
Some college or associate degree 6.9%
Bachelor’s degree and higher 3.8% (less than half the overall average)
Your obvious takeaway from this: Stay in school, let your parents pay for it if they can, and don’t be too eager to move out of the house. (And don’t tell them I said that!)
To be continued . . .