"When
more and more people are thrown out of work, unemployment results." Calvin
Coolidge's quote about joblessness was probably one time he would have been
better off living up to his nickname, "Silent Cal." Fast forward 80
years, and the former president would have a tougher time mastering the
obvious. Nowadays, unemployment is a fuzzy concept that can be measured in more
or less flattering ways.
Friday's
release of November jobs data, the first since the election, may involve less
acrimony than recent ones. But it may be more significant. With the Federal
Reserve weighing a target for ending extraordinary stimulus based on
unemployment, expect debate on how to interpret the rate.
It
likely stayed at 7.9% in November, according to economists. While unchanged
from the previous month, that level would be tied for the second-lowest reading
since January 2009.
The
Fed has made clear, though, that isn't good enough. And it may target what
seems like a low unemployment rate, suggesting at least a year more of bond
buying. This is because a given level of unemployment today translates into
less real wages per person available to be spent or taxed than it would have a
few years ago.
The
reason? The composition of those who are "employed" has changed.
Consider the 4.4% trough in unemployment in March 2007. Back then, another
measure of unemployment including "discouraged" workers was just
4.6%. An even broader gauge called the U6, which includes marginally employed
people seeking full-time work, was 8%. Today those are 8.4% and 14.6%,
respectively. So the "employed" aren't generating as much income as
they used to.
Meanwhile,
the size of the labor force hasn't kept up with the overall population.
Retiring baby boomers have played a role, but mostly it is due to people going
back to school, entering prison, becoming homemakers or claiming disability.
Payrolls have expanded by an average of just 80,000 a month since the recession
ended—less than population growth. And real disposable personal income per
capita is flat.
No wonder the Fed is
dissatisfied. While no one is thinking of a return to the trough rate, it may
want to see what would once have been a fabulous level of unemployment to
convince itself America is working.