Thursday, July 17, 2014

IDEA effective unemployment rate


The Institute for Dynamic Economic Analysis (IDEA), lead by economist Steve Keen, produces an unemployment rate measure based on the pre-crisis stable participation rate of 66.2%. It then adjusts the published BLS numbers for U-3 and U-6. Using this methodology, the current U-3 rate is just under 10%. See the full explanation on their web site.

While the participation rate will change over time, and the demographics of aging baby boomers does put downward pressure on the participation rate, I don't believe demographics or other explanations put forward fully explain the sudden crash in participation rate. A more reasonable explanation is that people are retiring earlier, applying for disability more, and staying in school longer or going back to school because the job market has forced them. I personally know people in each of those situations, and also people that have taken part time work because they could not find full time work.