Month: November 2008

What’s the Real Unemployment Rate?

The U-5 measure of unemployment stands at 7.5% in October 2008.

The officially reported unemployment rate rose to 6.5% in October 2008, according to the US Bureau of Labor Statistics. The BLS actually collects 6 different measures of unemployment, however, and reports U-3, one of the middle-range measures, as the official unemployment rate. This rate includes those who are actively looking for work, but does not include those who have given up looking because they can’t find a job. The official unemployment rate also excludes those who are working part-time but can’t find a full time job.

So what are the numbers?

October 2008 Unemployment Measures

U-3, Officially Reported Unemployment: 6.5%
U-5, Unemployment Rate including those who have given up: 7.5%
U-6, Unemployment Rate including under-employed: 11.8%

Since most Americans count those who have are discouraged to look for work as unemployed, the U-5 measure is a more accurate measure of unemployment, even if it’s less politically palatable. One percent of the US work force equates to 1.5 million people. So next time you see the headlines, remember to add a percentage point (or two!) when looking at unemployment numbers.

Posted on by praveenghanta 2

Do Lower Gas Prices Counteract Higher Unemployment?

Gas prices have fallen below $2 a gallon here in Atlanta, and in many other parts of the country. Unemployment is heading in the opposite direction, up to 6.5% at last count. With gas prices dropping so rapidly from $4, how much cushion will this provide for the economy?

The average price of regular gas over the last twelve months was $3.41, and Americans drove roughly 3 trillion miles over that period. If gas averages $2 over the next 12 months, Americans could save $211 Billion on gasoline over the next year, a savings of around $2000 per family.

How does this compare with the economic impact of lost employment? A 1% rise in unemployment corresponds to roughly 1.5 million jobs lost, and $75 Billion in total income lost at average American salaries. If unemployment rises from 5% (early 2008) to 8%, then the $225 Billion in lost wages may have approximately the same size impact in economic terms as the decrease in gasoline prices.

That’s a surprising result – gasoline is so important to the US economy that the drop in price negates a 3% drop in employment! While that won’t solve the problem of global de-leveraging and the credit crunch, it’s a big cushion to lean on.

Sources and Calculations:

US Total Vehicle Miles: http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm

US Gasoline Prices: http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_history.html

US Unemployment Stats: http://www.bls.gov/news.release/empsit.nr0.htm

US Total Wage Stats: Bureau of Economic Analysis

Gas Price Savings Calculation: 3 trillion miles / 20 mpg = 150 Billion gallons. 150B gals * 1.41 = $211B. The gas price was measured using the last 12 months to Oct. 31, 2008, from the EIA data above. If there are 100 million families in the US, this equates to roughly $2000 per family. Alternately, if the average family has two cars, and drives a total of 25,000 miles per year, then this equals 1250 gallons, and a savings of $1760.

Lost Wages Calculation: From the BLS, there are 154 million people in the labor force, so 1% rise in unemployment = 1.5M additional unemployed. From the BEA report, total US wages are 8 Trillion, or roughly $50,000 per person. 50,000 * 4.5M = $225 Billion

In comparing the magnitude of the two, both the drop in employment and drop in gasoline prices have multiplier effects on the economy that aren’t measured here. This raw comparison accounts for the first-order effects of both changes on the economy.

Posted on by praveenghanta 3

US Healthcare Reform: Possible Choices

The United States’ health care system is a patchwork of private care, Medicare for seniors, Medicaid for some of the poor, and emergency-only care for the 47M uninsured. Both presidential candidates insist that change is needed, with increased coverage and decreased costs as primary goals. Neither candidate mentions how public dollars will be rationed, though government resources are limited.

Here’s a list of a range of health care systems in place around the world, with the most market-oriented systems listed first, and the most government controlled systems listed last. The future of American health care will mostly take the form of one of the middle options, as both extremes appear politically unpalatable.

US Health Care System Choices:

Health Care System Description Found Where
Traditional Free Market Little government intervention, patients pay health care providers directly. Those without financial means rely on charity hospitals or receive no care. India, many developing countries
Public Senior Care + Semi-Free Market The government provides health care for seniors, while others rely on a regulated private health insurance market (whether purchased individually or through an employer). United States
Public Care for Children and Seniors The government provides health care for seniors and children, while others rely primarily on the private health insurance market (whether purchased individually or through an employer). Barack Obama’s health care plan approximates this
Mandatory Health Insurance The government requires that all individuals purchase health insurance, and provides subsidies to assist the poor and unhealthy in purchasing coverage. Massachusetts, Hillary Clinton’s Plan
Dual Public-Private System The government provides health care for all residents not enrolled in private care, and provides incentives for employers to provide health care and for individuals to purchase care. Individuals may also pay extra to supplement their basic government plan. Australia
Single Payer, Private Premium Care The government provides health care for all residents, and individuals can choose to pay extra for premium health care services (like private rooms, experimental treatments, etc). France, other European countries
Single Payer Only The government pays for all health care, and does not allow private market health care transactions. Canada
Posted on by praveenghanta 2