Unemployment Numbers and their Meaning

The new unemployment numbers last Friday were grim. While unemployment did nudge down to 9.5 % (from 9.7%) that is because more people left the labor force. That is not a good sign - it shows we actually have longer time to go before there will be any recovery in jobs. Throughout this recession, but especially this spring when it seemed as if the numbers were showing the economy was slowly nudging toward recovery, the constant refrain was the unemployment is a lagging indicator (it follows behind the business cycle), so it will only come down after the economy is into recovery. However, and this is why it is important to teach students how unemployment is calculated, the unemployment number can be greatly affected by the number of workers who choose to leave the labor force because they are "discouraged". The Friday unemployment numbers show increasing worker discouragement - a bad sign. Ironically, as the economy recovers, unemployment should actually go up as more workers re-enter the work force because they believe they can find jobs.

We may be heading into a situation of sluggish growth with high unemployment. Not a recession and not a recovery. A bit like the seventies without inflation.


This news has further fuelled the debate over austerity versus additional stimulus spending. This is particularly focused on the extension of long-term unemployment. There are a number of good articles out there that get to this point well. First, Edward Glasser of Harvard has a good piece in the Economix blog at the New York Times web page in which he sets out the basis points of the debate and provides a historical lens to see the debate through.

On a related note. The Sunday New York Times had a good article on Kenneth Rogoff and Carmen Reinhart and their book "This Time is Different" which is a history of financial collapses going back 800 years. The point of their book, hence the title, is that through out history people have said that the financial collapses of their times are "different" from the previous experiences, but that is they are really very similar. Their analysis shows how speculative bubble cause vicious financial collapses that can lead to massive government debts and long protracted recoveries. Sounds familiar? Unfortunately, their book is to dense for students - which is too bad because the insight is so important. Because of that, I think the article is a good short and concise way to introduce students to the concepts of their book. I am planning to assign the Times article with another one by Paul Krugman and Robin Wells from the New York Review of Books which puts the ideas from "This Time is Different" into the context of the current crisis.

At this point I am debating when I should assign the articles. At the start of the year, as a way of introducing the current state of the economy, or during the unit on financial markets and their affect on the economy. Right now my thoughts are to have them at the start of the year.