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Essay: Unemployment's True Measure

Posted by Will Rice (will) on Aug 05 2011 at 12:57 PM
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By Paul Manchester

The economic policy debate in Washington in recent months has focused almost entirely on the federal budget deficit and the need to increase the debt ceiling in light of current and projected deficits.  James Galbraith, the distinguished economics professor, ADA Vice President, and self-proclaimed “deficit owl” (so named for bringing needed wisdom to the topic) has argued persuasively that concerns about the deficit have been  blown out of proportion.

Other economists are less sanguine about federal debt, but even they are more  concerned about the longer term effects and do not prescribe drastic cuts in the short run to government programs that benefit American families.  And they realize that much of the current deficit is not “structural”—permanently built into our fiscal system—but rather “cyclical,” owing to the current recession with its resulting decreases in tax revenues and increases in spending for programs such as unemployment insurance. 

Meanwhile, the Labor Department’s report on unemployment in June should lead policymakers to refocus on the nation’s jobless.  The unemployment rate had declined steadily from 9.8 percent in November 2010 to 8.8 percent in March, but has increased alarmingly since then, standing at 9.1 percent in July.  Significantly, the average length of unemployment has also risen,  to 39.9 weeks in a recent report.  Few commentators have noted that the average duration of joblessness is now at a record level (even allowing for a change in methodology by the Bureau of Labor Statistics).

In the early 1980s, as an economist for the Joint Economic Committee of Congress, I developed a measure combining the number of unemployed with the average length of joblessness.  I referred to this measure as “total weeks of unemployment,” but the media quickly dubbed it the “Manchester Index.”

While the number of unemployed and the unemployment rate are now lower than their peak in October 2009, the Manchester Index shows these improvements have been more than offset by an increase in the average length of unemployment. Collectively, those jobless in June had been out of work an astounding 500 million weeks.

In response to recent disappointing employment reports, the Obama Administration has called for extending the payroll tax cut that the President signed in December 2010, and for creating an infrastructure bank.  Such a bank would fund rebuilding of our roads, bridges, and highways, creating jobs for the million construction workers out of work due to the collapse of the housing industry. 

These would be helpful moves, as would further extension of unemployment benefits set to expire at the end of the year.   But the first step is to refocus policymakers’ attention on the most important and most immediate economic problem facing the nation: pervasive and long-lasting unemployment.

Paul Manchester is the former Senior Staff Economist for the Joint Economic Committee of Congress.