Sunday, May 13, 2012

The Real Reason the Unemployment Rate is Not Substantially Lower – State and Local Governments Are Firing People

Aren’t Governments Supposed to Help?  -  No Silly Person, That Thinking is Just Anti-Conservative Thinking

When passions have cooled and objective analysis can be done about the economic crisis that began in late 2007 and ended in  - - - ok, it hasn’t ended yet and we don’t know when it will end - - - the gods of irony will have been shown to be fully in force.  Focusing on the unemployment rate, that irony will be shown to have been this.

  1. State and local governments, particularly those controlled by Republicans have engaged in massive layoffs of employees, resulting in the loss of effectiveness of critical government services and a much higher rate of unemployment.

  1. Those same Republicans are running against Democrats and Mr. Obama with the argument that the unemployment rate is too high.

Thanks to Jared Bernstein we have been directed to look at this on line post from the Wall Street Journal.  The Labor Department surveys employers to get employment data.

But the survey of households that the unemployment rate is based on suggests the government job cuts have been much, much worse.

In April the household survey showed that that there were 442,000 fewer people working in government than in March. The household survey has a much smaller sample size than the establishment survey, and so is prone to volatility, but the magnitude of the drop is striking: It marks the largest decline on both an absolute and a percentage basis on record going back to 1948. Moreover, the household survey has consistently showed bigger drops in government employment than the establishment survey has.

So what does all of this mean in terms of the unemployment rate?

The unemployment rate would be far lower if it hadn’t been for those cuts: If there were as many people working in government as there were in December 2008, the unemployment rate in April would have been 7.1%, not 8.1%.

Yes, higher employment might mean that less people gave up looking for jobs, so the unemployment rate might be above 7.1%.  But still it would certainly be much lower than it is today.  So Conservatives were faced with the choice of helping people or helping their own political fortunes by firing people and giving themselves a campaign issue.  Must have been a hard decision.

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