Contributor Post Created with Sketch. No, the Real U.S. Unemployment Rate Isn’t 37.2% C’mon, Man!

 

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There are plenty of reality-based criticisms of US economic performance under President Obama. This sort of click-bait distortion, via the Washington Examiner, is unnecessary and unhelpful:

Don’t believe the happy talk coming out of the White House, Federal Reserve and Treasury Department when it comes to the real unemployment rate and the true “Misery Index.” Because, according to an influential Wall Street advisor, the figures are a fraud. In a memo to clients provided to Secrets, David John Marotta calculates the actual unemployment rate of those not working at a sky-high 37.2 percent, not the 6.7 percent advertised by the Fed, and the Misery Index at over 14, not the 8 claimed by the government. Marotta, who recently advised those worried about an imploding economy to get a gun, said that the government isn’t being honest in how it calculates those out of the workforce or inflation, the two numbers used to get the Misery Index figure. … “Unemployment in its truest definition, meaning the portion of people who do not have any job, is 37.2 percent” [Marotta explains].

David John Marotta didn’t calculate much of anything. He just went to the Bureau of Labor Statistics web site and looked up the current labor force participation rate, which 62.8%. (See above chart.) He then subtracted that number from 100 to get 37.2%. Math counts! Now, the participation rate measures what share of adults are working or looking for work. But just because you don’t fall into either of those categories doesn’t mean you are “unemployed.” Maybe you are choosing to go to college or stay at home with the kids or retire. Or maybe you are discouraged and have simply stopped looking for work.

Explaining the sharp drop in the participation rate since 2007 — particularly how much is demographic vs. structural vs. cyclical — is the subject of much academic research and debate. As it turns out, the Wall Street Journal has a recent piece on the participation rate, and why the strengthening economy isn’t drawing people back into the labor market;

In December 2007, the month the recession started, 66% of the working-age population either had a job or was looking for one. That share fell during the recession and has continued dropping ever since. In September, participation dropped to 62.7%, the lowest since 1978, and remains near that level.

Some decline in the labor force was expected as the massive baby-boom generation born after World War II began turning 60 and retiring by the millions, in the mid-2000s. Few retirees return to jobs. Around 18% of those over age 65 are in the workforce. The decline in boomer participation isn’t the sole reason behind the decline. Another big explanation could be that people who drop out amid a bad economy can’t easily be enticed back. Economists call this labor-market scarring. People find other ways to get through life, even precariously, by relying on friends and family, going on disability or retiring early. “You can leave for economic reasons, but it doesn’t mean you’re going to come back for economic reasons,” Mr. Feroli said. Determining the cause and finding solutions for depressed participation has important implications.

Marotta’s simplistic, misleading analysis may create a neat talking point or get a Drudge hit, but it lowers the quality of public debate about America’s job market woes. (It also feeds a certain conspiratorial impulse.) Here is an actually useful take on what’s happening with US workers from this month’s big Washington Post series.

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  1. EJHill Podcaster
    EJHill Joined in the first year of Ricochet Ricochet Charter Member

    Question: How can you define the participation workforce as being “working-age population” and then dismiss the decline as being part of the natural retirement of the boomers? Once you are eligible to retire don’t you transfer out of the definition of that demographic?

    • #1
    • December 29, 2014, at 10:42 AM PST
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  2. Tuck Inactive

    James Pethokoukis: Or maybe you are discouraged and have simply stopped looking for work.

    I presume these people have also stopped eating?

    • #2
    • December 29, 2014, at 11:52 AM PST
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  3. Instugator Thatcher
    Instugator Joined in the first year of Ricochet Ricochet Charter Member

    Please Tuck – there has to be a reason why Food Stamp participation is at an all time high…

    • #3
    • December 29, 2014, at 12:02 PM PST
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  4. Pilli Inactive

    Let’s see if this is right:

    1) People who receive money for work performed are considered employed.

    2) People who are looking to join group #1 above are considered unemployed.

    3) There is a subset of people who receive money for the investments they have made and yet do not work. (In this case Social Security is considered an investment.) They are not considered employed or unemployed.

    4) There is a subset of people who cannot join #1 above and may not be eligible to join #3. They are not considered employed or unemployed.

    4) People who are not looking to join group #1 or are not a member of #3 are not considered as employed nor unemployed.

    So, it seems that any employment / unemployment numbers are pretty much made up based on what the presenter wants / needs. Until there is a consensus as to what is considered to be “true” unemployment…

    • #4
    • December 29, 2014, at 12:08 PM PST
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  5. Instugator Thatcher
    Instugator Joined in the first year of Ricochet Ricochet Charter Member

    Sorry Jim, but the WaPo article you cite recycles the wage stagnation claim. Looking on the interwebs I find an interview that you conducted in 2012 that purports to show that wage growth in the middle class is 37% based on data that takes into account after-tax and after-transfer activities.

    http://www.aei.org/publication/piketty-and-saez-vs-burkhauser-and-cornell-whos-right-on-income-inequality-and-stagnation/

    If the Burkhauser analysis is correct then the WaPo assertion of the causes cannot be correct.

    So which is it?

    • #5
    • December 29, 2014, at 12:13 PM PST
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  6. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    Jim,

    I really find the WaPo just as bad as Marotta. Marotta concludes that there are no adults who are not employed who should not be counted. While the WaPo article is a litany of excuses.

    You are a serious student of economics. I have repeatedly heard that the formula to calculate unemployment keeps changing. If the 2001 model was used it would be 12%. I really doubt we were that unsophisticated in 2001 that we didn’t calc in the structural unemployment. The changes looks very much like a cosmetic propaganda job. I suspect both the Dems and the Chamber of Comm. They both think allowing an infinite number of illiterate illegals into the country is really cool.

    They are really idiots.

    Regards,

    Jim

    • #6
    • December 29, 2014, at 1:06 PM PST
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  7. AIG Inactive
    AIG

    Labor participation rates count people who are of working age, but not working.

    It doesn’t mean they are looking for work, or want to work.

    Lot of people who are of working age are not working for any number of reasons, including going to college, being stay at home moms/dads, or simply have enough retirement funds to afford not work.

    There’s no “mystery” here.

    Civilian_Labor_Force_Participation_Rate_by_Age

    As we can see here, the biggest drop in participation rates is among 16-24 year olds.

    James Gawron: The changes looks very much like a cosmetic propaganda job.

    That’s the way to do it. It’s a conspiracy! Of course!

    • #7
    • December 29, 2014, at 2:10 PM PST
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  8. Randy Webster Member

    When the government adjusts numbers “for more accuracy,” the new method invariable makes the numbers look better. If they were truly concerned with accuracy, sometimes, just by chance, when they changed the calculation methods, it would make the numbers look worse.

    Also, AIG, is your icon a picture of a tent, or one of those cupolas the Germans put atop their bunkers in Normandy?

    • #8
    • December 29, 2014, at 3:02 PM PST
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  9. AIG Inactive
    AIG

    Randy Webster: When the government adjusts numbers “for more accuracy,” the new method invariable makes the numbers look better. If they were truly concerned with accuracy, sometimes, just by chance, when they changed the calculation methods, it would make the numbers look worse.

    And the tens of thousands of economists, in all sorts of institutions and companies and universities, who use these numbers on a regular bases for all sorts of reasons…never noticed this?

    Randy Webster: Also, AIG, is your icon a picture of a tent, or one of those cupolas the Germans put atop their bunkers in Normandy?

    Neither :)

    • #9
    • December 29, 2014, at 3:27 PM PST
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  10. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    Mr. Pethokoukis,

    Since your implication is that the unsophisticated tea partyish Washington Examiner is the only challenge to the current nonsense narrative of unemployment under 6%, how about you review this article from that low brow tea party publication Forbes.

    Tackling the real unemployment rate: 12.6%

    Regards,

    Jim

    • #10
    • December 29, 2014, at 3:27 PM PST
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  11. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    AIG:Labor participation rates count people who are of working age, but not working.

    It doesn’t mean they are looking for work, or want to work.

    Lot of people who are of working age are not working for any number of reasons, including going to college, being stay at home moms/dads, or simply have enough retirement funds to afford not work.

    There’s no “mystery” here.

    Civilian_Labor_Force_Participation_Rate_by_Age

    As we can see here, the biggest drop in participation rates is among 16-24 year olds.

    James Gawron: The changes looks very much like a cosmetic propaganda job.

    That’s the way to do it. It’s a conspiracy! Of course!

    Captain Strawman,

    One needs no conspiracy when one is taking about short sighted stupidity. The Dems lust for mindless government programs that if they were only just wasteful it would be a relief, is juxtaposed against the Chamber’s capacity to destroy the long term viability of the USA for a quick and temporary bump in this quarter’s earning.

    Regards,

    Jim

    • #11
    • December 29, 2014, at 3:35 PM PST
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  12. Dan Hanson Thatcher
    Dan Hanson Joined in the first year of Ricochet Ricochet Charter Member

    AIG: What is the source of that graph? And how come there’s no breakdown for workers between 30-55?

    Also, as I understand the way the statistics are calculated, the retirement of the Baby Boom generation should actually improve labor force participation, because older people (near to, not yet retired) generally have lower participation rates, but once they reach the age of retirement they are taken off the roles completely. You can see that on your graph – the cohort between 60-65 has a labor participation rate about 20 points lower than the overall population

    As a demographic bulge ages through the years, you would expect the effect to be an increase in the labor force participation rates as that group reaches their peak employability, then a slow decline as the median age of that group pushes it near retirement, followed by a reversion to the mean as the members of that bulge retire and the skew returns to normal.

    • #12
    • December 29, 2014, at 3:55 PM PST
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  13. AIG Inactive
    AIG

    James Gawron: Mr. Pethokoukis, Since your implication is that the unsophisticated tea partyish Washington Examiner is the only challenge to the current nonsense narrative of unemployment under 6%, how about you review this article from that low brow tea party publication Forbes. Tackling the real unemployment rate: 12.6% Regards, Jim

    Forbes is a better source?

    James Gawron: Captain Strawman, One needs no conspiracy when one is taking about short sighted stupidity. The Dems lust for mindless government programs that if they were only just wasteful it would be a relief, is juxtaposed against the Chamber’s capacity to destroy the long term viability of the USA for a quick and temporary bump in this quarter’s earning. Regards,

    I have no clue what you said there. You’ll have to forgive me, I must be one of those short sighted stupid people we seem to be uncovering under every rock.

    Dan Hanson: AIG: What is the source of that graph? And how come there’s no breakdown for workers between 30-55?

    I can’t recall the source. But here’s the BLS data. Pretty much shows the same thing: biggest drop happened in 16-24 year olds.

    http://www.bls.gov/emp/ep_table_303.htm

    Dan Hanson: Also, as I understand the way the statistics are calculated, the retirement of the Baby Boom generation should actually improve labor force participation, because older people (near to, not yet retired) generally have lower participation rates, but once they reach the age of retirement they are taken off the roles completely. You can see that on your graph – the cohort between 60-65 has a labor participation rate about 20 points lower than the overall population

    Not if they retire earlier than the BLS removes them from the “rolls”.

    I.e., 55-64 year olds have a labor rate participation of 56%. That means that nearly half of the people in that age group aren’t working, but they are clearly in the “working age group”.

    Why aren’t they working can be for any number of reasons, not necessarily “unemployment”.

    Dan Hanson: As a demographic bulge ages through the years, you would expect the effect to be an increase in the labor force participation rates as that group reaches their peak employability, then a slow decline as the median age of that group pushes it near retirement, followed by a reversion to the mean as the members of that bulge retire and the skew returns to normal.

    Not if more young people are deferring work for later years in order to get more education

    But they aren’t unemployed.

    Notice that the decrease in labor participation started in the late 90s! 

    • #13
    • December 29, 2014, at 4:44 PM PST
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  14. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    AIG,

    Of course, they are deferring work to get more education. It isn’t that there are no jobs so they have no better alternative.

    Perhaps if we could just convince say 10 or 20% of those in the current ‘formula’ to commit suicide the numbers would look even better. If not just change the formula again after we’ve destroyed the hope of even more people.

    Regards,

    Jim

    • #14
    • December 29, 2014, at 4:52 PM PST
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  15. AIG Inactive
    AIG

    Hmm. Jim as always, you’re spot on. The only real question of any matter here, is why not use A-10s to remove those people from the job rolls instead of encouraging suicide. That way, you’ll get something out of it too.

    Regards, Jim.

    • #15
    • December 29, 2014, at 4:55 PM PST
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  16. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    AIG:Hmm. Jim as always, you’re spot on. The only real question of any matter here, is why not use A-10s to remove those people from the job rolls instead of encouraging suicide. That way, you’ll get something out of it too.

    Regards, Jim.

    Odd, you’ve adhominemed me at every turn and found the subtle ways to blame the victims of this lame economy but you still haven’t answered for the U-6 data about the tremendous amount of underemployment that is mixed into the numbers. The Forbes article covers this very well. We are talking about an immense amount of pain out there and we are talking about an immense amount of waste of human capital. That human capital is being wasted on a feel good lie to perpetuate the myth of this administration. I don’t see why we should help.

    Regards,

    Jim

    • #16
    • December 29, 2014, at 5:14 PM PST
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  17. AIG Inactive
    AIG

    James Gawron: Odd, you’ve adhominemed me at every turn and found the subtle ways to blame the victims of this lame economy but you still haven’t answered for the U-6 data about the tremendous amount of underemployment that is mixed into the numbers. The Forbes article covers this very well. We are talking about an immense amount of pain out there and we are talking about an immense amount of waste of human capital. That human capital is being wasted on a feel good lie to perpetuate the myth of this administration. I don’t see why we should help.

    Perhaps, because it’s all fantasy. Perhaps, in the quest to make up all sorts of ludicrous stories in an attempt to score cheap political points…Forbes, and you, and others…have opened yourself up to ridicule.

    Which was the point of this post by James in the first place.

    If you want to talk “underemployment”, you first have to figure out what that means.

    Here’s some data:

    underemployment

    So “underemployment” actually still provides people with a considerable positive return. Meaning, even if you are “underemployed”, you might still be making pretty good money either way.

    So “underemployment” is just a rough category, but tells us nothing about how much people actually…EARN.

    That’s what jobs are for, right? Making money?

     While people in these noncollege jobs receive lower returns than their counterparts working in jobs that require a bachelor’s degree, they still tend to earn a relatively high positive return, with the lowest being 7 percent for education majors. These findings indicate that employers are willing to pay a premium for college graduates relative to those with just a high school diploma, even in jobs that are not typically considered college-level positions.

    http://www.newyorkfed.org/research/current_issues/ci20-3.pdf

    So you tell me a lot of people are “underemployed”? And I’ll tell you…”so what”? Tell me how much they’re earning. That’s all that matters.

    So this is the point here. There’s plenty to criticize this administration on. There’s plenty of bad economic performance to go around.

    You don’t need to make up ridiculous fantasies of conspiracy theories…to show this. When you do, all you will get, is ridicule. And justifiably so. 

    • #17
    • December 29, 2014, at 5:52 PM PST
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  18. AIG Inactive
    AIG

    James Gawron: and found the subtle ways to blame the victims of this lame economy

    I blamed the “victims”?

    Maybe you didn’t notice the fact that this trend started in the late 2000s. Oops! Republican years, right? ;)

    “Victims”? I said more young people are going to college, and staying longer. That’s neither “blaming” anyone, nor quantifying anyone as a “victim”. People go to college, because employers reward higher levels of education more these days.

    That’s precisely what they should be doing.

    • #18
    • December 29, 2014, at 5:56 PM PST
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  19. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    AIG:

    James Gawron: and found the subtle ways to blame the victims of this lame economy

    I blamed the “victims”?

    Maybe you didn’t notice the fact that this trend started in the late 2000s. Oops! Republican years, right? ;)

    “Victims”? I said more young people are going to college, and staying longer. That’s neither “blaming” anyone, nor quantifying anyone as a “victim”. People go to college, because employers reward higher levels of education more these days.

    That’s precisely what they should be doing.

    AIG,

    You can rail all you want. The idea of claiming this economy is producing a sub 6% unemployment rate is as ludicrous a claim as this economy is at 37% unemployment. A realistic number is around 12%.

    Well CNBC thinks it dropped to 11.5%.

    Whoops THE HILL thinks it’s 18%.

    Bizarre HUFFPOST thinks it’s 11.8%.

    Here’s a cool panel discussion from NBCNEWS with some guy by the name of Jim Pethokoukis. About 12% and the economy sucks.

    Why are all these guys out to get you AIG?

    Regards,

    Jim

    • #19
    • December 29, 2014, at 6:45 PM PST
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  20. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    Wait, wait,

    Big resume economists think it’s only 9.2%.

    I don’t want to exaggerate.

    Regards,

    Jim

    • #20
    • December 29, 2014, at 7:03 PM PST
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  21. Gazpacho Grande' Coolidge

    To James’ point, that’s a standard-issue St. Louis Fed chart, but it obviously does not mean that the unemployment “rate” is 37%. That the Washington Examiner would push that claim out, intentionally or no, makes the argument harder about what the real unemployment numbers are.

    Meaning let’s not do math in public if we don’t know what we’re doing, Examiner.

    • #21
    • December 29, 2014, at 7:17 PM PST
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  22. AIG Inactive
    AIG

    James Gawron: AIG, You can rail all you want. The idea of claiming this economy is producing a sub 6% unemployment rate is as ludicrous a claim as this economy is at 37% unemployment. A realistic number is around 12%. Well CNBC thinks it dropped to 11.5%. Whoops THE HILL thinks it’s 18%. Bizarre HUFFPOST thinks it’s 11.8%. Here’s a cool panel discussion from NBCNEWS with some guy by the name of Jim Pethokoukis. About 12% and the economy sucks. Why are all these guys out to get you AIG? Regards, Jim

    1) CNBC, The Hill, HuffPost…and with no disrespect intended…Jim Pethokoukis…aren’t serious economic sources.

    They’re journalists.

    2) There’s no such thing as the “real” unemployment number. There’s only proxies for them, as with almost everything in life. The BLS gives…MULTIPLE PROXIES…for the unemployment number.

    No need for you to keep citing only 1 of them, if you disagree with it so much. BLS gives you several to pick from :)

    So your whole point is: I don’t like this proxy, so I’m going to pick something that I think is the “REAL” unemployment number, because it reflects my intention of scoring cheap political points, even though I have no better way of determining the “REAL” unemployment numbers than the BLS does

    I just “like mine better”.

    But I’m not as intellectually honest as the BLS is, which actually provides multiple types of proxies for the unemployment numbers. Nor do I have to explain how my measure works, like the BLS does.

    No no. All I need to do is sit back and cite some journalist, and then claim that everyone, everywhere, all the time, is lying.

    PS: So we forgot about the “underemployment” thing now, and jumped onto the next bandwagon: BLS is lying.

    So if BLS is lying now, was it also lying when Bush was in power? Which way did that lie go? Over or under-estimating unemployment? Or does BLS only lie whenever it is convenient for us to claim it is lying?

    • #22
    • December 29, 2014, at 7:29 PM PST
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  23. AIG Inactive
    AIG

    James Gawron: Wait, wait, Big resume economists think it’s only 9.2%. I don’t want to exaggerate. Regards, Jim

    No no. You wait wait Jim! :)

    So everyone recognizes the difficulty on calculating these things. Everyone recognizes that there’s multiple ways to measure these things.

    Everyone even provides you with the multiple ways to calculate these things!

    And yet…YOU…claim to know not only the that everyone is in fact lying, but that YOU happened to know the REAL unemployment rate, which is how you know they’re lying.

    Amazing, Jim!

    PS: Do you realize that you’re claiming that they are all lying and cheating, and supporting your claims by providing links to them openly discussing…the weaknesses and multiple ways of measuring these things?

    Do you realize the irony in this?

    Because I find it hilarious.

    • #23
    • December 29, 2014, at 7:34 PM PST
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  24. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    AIG:

    James Gawron: Wait, wait, Big resume economists think it’s only 9.2%. I don’t want to exaggerate. Regards, Jim

    No no. You wait wait Jim! :)

    So everyone recognizes the difficulty on calculating these things. Everyone recognizes that there’s multiple ways to measure these things.

    Everyone even provides you with the multiple ways to calculate these things!

    And yet…YOU…claim to know not only the that everyone is in fact lying, but that YOU happened to know the REAL unemployment rate, which is how you know they’re lying.

    Amazing, Jim!

    PS: Do you realize that you’re claiming that they are all lying and cheating, and supporting your claims by providing links to them openly discussing…the weaknesses and multiple ways of measuring these things?

    Do you realize the irony in this?

    Because I find it hilarious.

    AIG,

    I think the least likely number is what you wish to do which is allow the administration its feel good fantasy of sub 6%. A number that still means anything at all starts at about 9 and there is rational argument all the way to 18%. Your’s is the relativist cop out. Since there is no perfect measure, and no one was actually claiming anyway, you wish to ignore the most likely range. Meanwhile the administration constructs a fantasy recovery. They will use it to further justify their irresponsibility on the immigration issue. We on the other hand must remain silent and accept whatever a lame duck president who has lost both houses of Congress says.

    Is the Washinton Examiner’s economic naivete the problem or 6 years of an administration that openly admits deception as its modus operandi? Jonathan Gruber just spelled it out for all to see.

    Regards,

    Jim

    • #24
    • December 30, 2014, at 11:44 AM PST
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  25. Misthiocracy got drunk and Member
    Misthiocracy got drunk and Joined in the first year of Ricochet Ricochet Charter Member

    How was the unemployment rate calculated during the Great Depression?

    Is there a site that uses that methodology to calculate the unemployment rate today, so that folk have a 1930s baseline to use as comparison?

    (I didn’t read through the comments, so apologies if I’m covering old ground.)

    • #25
    • December 30, 2014, at 1:21 PM PST
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  26. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    Misthiocracy:How was the unemployment rate calculated during the Great Depression?

    Is there a site that uses that methodology to calculate the unemployment rate today, so that folk have a 1930s baseline to use as comparison?

    (I didn’t read through the comments, so apologies if I’m covering old ground.)

    Mis,

    Sounds like a perfectly reasonable request. I’ll try to find it.

    Regards,

    Jim

    • #26
    • December 30, 2014, at 1:44 PM PST
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