Unemployment

Wall Street seems to be recovering slowly from the 400 point drop at close of business Friday. Of course, it's only 10 am now, so the day's fire sale may be yet to come, but I'll be cautiously optimistic that prices will pick up at least a little throughout the day.

This has not been a good year for stocks in general, but last week's dip was triggered by the new jobless numbers, which were much higher than expected. To count d(i.e. to be counted) as "unemployed" a person must actively be seeking employment. A full-time homemaker, for example, doesn't count as unemployed because he/she isn't trying to find work. Analysts suggest that the numbers were high, not because people have been out of work, but because more people entered the workforce than was anticipated. You get a spike this time of year anyway, what with high school and college graduates suddenly throwing their names into the labor pool. So why were the numbers so high this time?

Well, there are a couple of possibilities. First of all, it could be that fewer high school grads are going to college (I have no numbers to support this, by the way, just a theory). In that case, the added spike now will eventually be offset by a reduced spike four to five years from now when those people would have left college.

But I've got an even better theory. One of my old econ profs told me that one of the shortcomings of only looking at those actively seeking employment was that it left out people for whom employment was only one viable option. For example, if someone found themselves out of work at the start of an economic downturn and reasoned that they would likely be out of work for a few years, then they might decide to go back to school and complete their masters or something like that. They would effectively be taking themselves out of the workforce and not be counted as unemployed, even though they would have been employed if the economy were stronger.

People in this situation are essentially under-reported by the current unemployment index. So here's my idea. The post-9-11 prolonged economic downturn (or stagnation, or recession--whatever you call it, it's not a boom) has steadily driven people into continuing their education and now, six years on, they've run out of schooling and are trying to re-enter the workforce. That caused (at least partially) the spike in unemployment which led to the surge in oil speculation, etc, etc, etc.

Just a theory.

Bonus rant: the other drawback to the unemployment index is that it doesn't count "underemployment", e.g., people who have a degree in meteorology and work at McDonald's. It is another sign of economic strength, but it isn't represented. That said, the unemployment index is quite useful in spite of its imperfections, so I don't mean to rag on it too much. Any metric is going to be a mix of uses and shortcomings.