Break the Silence on the Unemployment Problem

By Jan 28, 2013, 9:29 AM Author's Blog  

In his inaugural address, President Obama said that “An economic recovery has begun.” It was an applause line. The line is correct of course, but it is really nothing to applaud. As economists define it, the recovery began nearly four years ago when the 2007-2009 recession ended in June 2009. So we have had a recovery for most of the Obama Administration. The problem is that it is a recovery in name only, one of the weakest recoveries in American history. Growth has been about 2 percent since the recovery began and median household income has declined. That is far less economic growth than recoveries following deep recessions with financial crises in American history.

This slow recovery has left unemployment tragically high in most parts of the country. In the San Francisco Bay Area where I live we are relatively lucky. In San Francisco the unemployment rate is 6.7%. The rate is 7.8 % in the country as a whole, and 9.8 % in the state as a whole. In the nearby central valley—cities like Yuba City, Modesto, Merced, Fresno—it’s about 15%, and down south in El Centro California it’s 27%.

The numbers would all be worse if they included the unusually large number of people who have dropped out of the labor force and are no longer counted as unemployed. If they counted, the national unemployment rate would be 9.1 percent. Another way to think about this is to look at the fraction of working age adults who are employed. Though this number usually rises during recoveries, it is actually smaller now than when the recovery began.

But you know even that relatively low 6.7% in San Francisco is pretty terrible. I like to tell the story about what Senator Hubert Humphrey said when President Ford’s Council of Economic Advisers, where I worked with Alan Greenspan, reported to the Joint Economic Committee (JEC) that it was raising the definition of the normal unemployment rate from 4.0% to 4.9%. Humphrey, who chaired the JEC, was outraged and told us in the JEC hearing that “if the country was suffering a plague and you economists were doctors your solution would be to raise the definition of normal body temperature above 98.6 degrees”

So I am worried when people stop talking about today’s very high unemployment rates as if they were normal. It is not a good sign that the inaugural address was silent on the subject, not even including the word unemployment.

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