Claims for unemployment insurance fell to a 9-month low this week. While touted as a sign of recovery, it is worth examining why. There are no credible signs that growth in jobs is a reason for the drop in the unemployment rate. Indeed, the real reason for fewer unemployment benefits claims seems to be quite the opposite.
Reason for Drop In Unemployment
Unemployment statistics are based on the number of people claiming unemployment benefits. This means that once a person stops receiving unemployment insurance, they are no longer counted as “unemployed” for the purpose of statistics (long-term unemployed).
There are a few reasons why a drop in unemployment benefit claims is not necessarily a sign of a growing economy:
- The number does not include people who are no longer eligible to collect unemployment insurance.
- Many part-time workers are not eligible for unemployment insurance.
- Electrical engineers who were making six figures can hardly be said to be “employed” because they took a stopgap job as a Wal-Mart greeter for ten bucks an hour.
So we see that the number of people on the unemployment rolls isn’t necessarily an indicator of economic recovery. Due to the nature of the statistic, it might be concealing a far more sinister truth about the American economy and its recovery.
Unemployment Benefit Claims and Job Growth
While the number of unemployment benefits claims fell, a better metric of how the U.S. economy is doing is job growth. It’s worth examining this figure for a more accurate picture of the American economy.
National Public Radio reports that the labor force contracted by over 300,000 people who stopped looking for work because they don’t think they’ll find any anywhere. Compare this to the number of jobs added: 120,000.
Note that 200,000 new people enter the work force every month. This means that job growth is not even keeping up with the number of people coming into the workforce, let alone providing jobs for the people who have been fired or laid off.
Add to this the fact that real (inflation-adjusted) wages have remained stagnant or declined and picture isn’t quite as rosy as the administration tries to paint it.
From Unemployment Insurance to What?
Another interesting metric to look at is where the job growth is occurring. As stated above, an electrical engineer who gets a job at Wal-Mart might be employed, but just barely. Indeed, it’s hard to underestimate the impact of moving from highly skilled, professional labor to a McJob, in terms of both the psychological and economic effect on the individual and the national economy.
Sow where are the jobs?
Well, the Bureau of Labor Statistics reported that most of them, to the tune of almost half, are in retail. Nearly another 20 percent are in hospitality and leisure. About a quarter are in the professional and business sector. In other words, there’s really nothing in the jobs report that seems promising.
The Administration’s Spin on Unemployment Benefits Claims
The Obama Administration has, predictably, decided to spin the latest unemployment report as a great victory in economic recovery. This is to be expected. An election year is coming and an administration elected on “hope and change” has provided little but stagnation. The president is highly vulnerable on this issue and it may be far too late for him to do anything about it.
