Abbott & Costello Economics

Unemployment is dropping — as explained by Bud & Lou:

COSTELLO: I want to talk about the unemployment rate.
ABBOTT: Good Subject. Terrible times. It’s 9%.
COSTELLO: That many people are out of work?
ABBOTT: No, that’s about 20%.
COSTELLO: You just said 9%.
ABBOTT: 9% Unemployed.
COSTELLO: Right 9% out of work.
ABBOTT: No, that’s about 20%.
COSTELLO: Okay, so it’s 20% unemployed.
ABBOTT: No, that’s 9%…
COSTELLO: WAIT A MINUTE. Is it 9% or 20%?
ABBOTT: 9% are unemployed. 20% are out of work.
COSTELLO: IF you are out of work you are unemployed.
ABBOTT: No, you can’t count the “Out of Work” as the unemployed. You have to look for work to be unemployed.
COSTELLO: But they ARE out of work!!!
ABBOTT: No, you miss my point.
COSTELLO: What point?
ABBOTT: Someone who doesn’t look for work, can’t be counted with those who look for work. It wouldn’t be fair.
COSTELLO: To whom?
ABBOTT: The unemployed.
COSTELLO: But they are ALL out of work.
ABBOTT: No, the unemployed are actively looking for work… Those who are out of work stopped looking. They gave up. And, if you give up, you are no longer in the ranks of the unemployed.
COSTELLO: So if you’re off the unemployment roles, that would count as less unemployment?
ABBOTT: Unemployment would go down. Absolutely!
COSTELLO: The unemployment just goes down because you don’t look for work?
ABBOTT: Absolutely it goes down. That’s how you get to 9%. Otherwise, it would be 20%. You don’t want to read about 20% unemployment do ya?
COSTELLO: That would be frightening.
ABBOTT: Absolutely.
COSTELLO: Wait, I got a question for you. That means they’re two ways to bring down the unemployment number?
ABBOTT: Two ways is correct.
COSTELLO: Unemployment can go down if someone gets a job?
ABBOTT: Correct.
COSTELLO: And unemployment can also go down if you stop looking for a job?
ABBOTT: Bingo.
COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to just stop looking for work.
ABBOTT: Now you’re thinking like a politician.
COSTELLO: I don’t even know what I just said!

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2 Responses to Abbott & Costello Economics

  1. Scott Titus says:

    Who is on first? The sad truth is, the last time government spending was cut to balance the budget it was 1969. The GDP sank but the budget was balanced in one year. This time around four or five years of spending cuts wont balance the budget. By the end of the decade, our GDP will be lower, the unemployment rate will be at 2 percent with fifteen percent of the population on the government dole like much of Europe is now. The up side is that more people will be gardening.
    about a minute ago

  2. Chris Laughton says:

    Well, it doesn’t have to be that confusing, you’re just talking about different statistical ways of measuring unemployment and labor force. Correct me if I’m wrong, but you’re really talking about the difference between the U3 Unemployment measure (the “official” rate) which sits at 8.3% and the U6 measure which is a more depressing 15.1% and includes the underemployed and “discouraged workers”. (these are classifications given by the Bureau of Labor Statistics). Yes, to be counted in U3 you must be actively seeking work. That’s the traditional standard, and it’s the one most appropriate for historical comparison. U6 is always going to be a lot higher than U3. What’s changed recently is that we’re seeing a bigger gap between the two as more long-term unemployed and displaced workers get discouraged and stop actively seeking work. This is particularly troubling as this group’s employment prospects are not good. And yes, some of the improvement in the U3 rate is due to people dropping out of the workforce, which is lowering the rate but for a bad reason. But counting everyone without a full-time job isn’t neccesarily the answer either. Should an early retiree be counted as “unemployed”? How about a stay-at-home mom? Or a part-time worker? Or someone who went back to school? Some of them may want jobs, and some of them may not. This uncertainty makes the U3 rate, those ‘actively seeking employment’ the core rate. Of course these figures get twisted and turned all the time to suit political purposes. Let’s hope for a prosperous 2012 and a more robust employment picture.

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