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July 18, 2005
Krugman Compares Apples to Oranges
In his latest offering, Paul Krugman uses the classic dodge by liberals whenever unemployment drops during a Republican presidency. First the basic background:
Many seemingly authoritative figures, not all of them partisan shills, say that the American economy has fully recovered from the recession that began in 2001. They point to the unemployment rate, which has fallen from a peak of 6.3 percent in 2003 to 5 percent last month. That's not quite as low as the 4.2 percent unemployment rate in February 2001, when the recession began, but it's fairly low by historical standards.
Economists who argue that there's something wrong with the unemployment numbers are buzzing about a new study by Katharine Bradbury, an economist at the Federal Reserve Bank of Boston, which suggests that millions of Americans who should be in the labor force aren't. "The addition of these hypothetical participants," she writes, "would raise the unemployment rate by one to three-plus percentage points."
Well, the obvious question is, "Did that apply to that 4.2% unemployment rate in February 2001?" And the answer is, of course it did. So really, in relative terms the 5.0% unemployment rate currently is comparable to the 4.2% unemployment rate 4 years ago. What Krugman wants us to do mentally, is compare the old 4.2% rate to a rate of about 8%.
That's where Dr. Bradbury's study comes in. She shows that the upbeat view doesn't hold up in the face of a careful examination of the numbers. In fact, because older Americans, especially older women, are more likely to work than in the past, labor force participation should have risen, not fallen, over the past four years. As a result, she suggests that there may be "considerable slack in the U.S. labor market": there are at least 1.6 million and possibly as many as 5.1 million people who aren't counted as unemployed but would take jobs if they were available.
Well, the jobs are certainly available in Arizona; I see help wanted signs at convenience stores and fast food outlets all the time.
Posted by pat at July 18, 2005 09:38 AM
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» How many people should be working in America? from Econbrowser
Quite a few commentators have suggested that the labor force participation rate is a much better indicator of the health of the U.S. labor market than is the unemployment rate. I feel that quite a few commentators have this wrong.
[Read More]Tracked on July 24, 2005 04:11 PM
» How many people should be working in America? from Econbrowser
Quite a few commentators have suggested that the labor force participation rate is a much better indicator of the health of the U.S. labor market than is the unemployment rate. I feel that quite a few commentators have this wrong.
[Read More]Tracked on August 2, 2005 01:26 AM