There is No Jobless Rate

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by Zachary Karabell,

from The Wall Street Journal,

The most totemic statistic about the U.S. economy is archaic and misleading.

Friday, the U.S. Bureau of Labor Statistics released its monthly employment report, as it does at the start of every month. As usual, the announcement was widely covered in the financial and mainstream media—a convenient hook for commentary about the state of the economy, the arc of the recovery and the future of the U.S.

The unemployment rate is one of the most consequential numbers shaping our body politic. Unfortunately, it is also one of the most misleading. It isn’t just that the number is a statistical artifact, involving substantial estimation and frequent adjustments. Nor is it because the unemployment report as a whole combines two rather different surveys.

The real problem is that the number, originally designed for limited purposes, has come to assume totemic status. Focusing so single-mindedly on this one employment figure has made it impossible to have a cogent discussion of labor in the U.S. and to design meaningful responses to our varied economic problems.

The U.S. government began to define and measure unemployment seriously only because of the Great Depression. As the crisis hit suddenly in 1929, the Hoover administration had no way to know just how bad things were. A bigger budget for the sleepy Bureau of Labor Statistics soon led to the initial U.S. efforts to first define and then count unemployment.

This early push showed that the Depression was substantially worse than suspected, which gave Franklin Roosevelt a powerful argument for change in the election of 1932. Herbert Hoover, a devotee of the scientific management of government, was hoist on his own statistical petard.

What’s wrong with this one number, aside from its outsize influence on our politics and economic self-image? The fact is, there simply is no national unemployment rate.

If you closed your eyes and put your finger on a map of the U.S., you would hardly ever point to a place where the unemployment rate precisely matched the national number calculated by the government. But our approach to unemployment treats the number as real and sacrosanct rather than as an average masking huge variations.

If you are a college-educated woman, your unemployment rate is less than 4%. If you are an African-American male with a high-school diploma or less, the rate is well into the mid-20s, and it is in the teens for Hispanics at that education level. If you live in Nebraska or North Dakota, there has been no unemployment crisis in the past five years, and the rate has consistently stayed below 5%. If you live in the areas hit hardest by the bursting of the housing bubble—Central California, Greater Phoenix, Las Vegas, vast swaths of Florida—or the areas decimated by the woes of the auto industry, the unemployment rate has frequently been above 10%.

We have multiple unemployment rates—by race, gender, geography and above all educational attainment. When people talk of an unemployment crisis, it would be more accurate to speak of an education crisis or a crisis of men whose skills are mismatched to today’s jobs. It would be more accurate to speak of a jobs crisis in specific regions of the country or for specific industries. Yet we maintain the collective fiction that one simple average accurately captures multiple realities.

Today, we need to pay much more attention to the details of the data and much less to an average that obscures far more than it reveals. This shift would allow us to design policies for those segments of the economy and the labor force where help is most needed.

targeted legislation is the only cost-effective way for government to address the structural issues of unemployment. Spending tens of billions of dollars a year on unemployment benefits is perhaps the least effective way to deal with the problem. It relies entirely on the belief that once this thing called the economy gets humming again, employment will just materialize. But for many Americans who are bearing the brunt of the downturn, that is unlikely to happen. And we will have spent years of benefits with nothing to show for it.

The unemployment rate has outlived its use. It is time to say goodbye to it—and to plunge into the wealth of information we have about the economic world in which we actually live and work.

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