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.

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.

Just One More Boom

PLEASE GOD, Just Give Me One More Oil Boom. I Promise Not to Blow It Next Time.

– Bumper sticker seen in Texas oil country after the 80’s oil bust

I wonder if any in the oil patch cashed out in the wake of the recent boom and bust? With the stock market, real estate, and commodities all down in tandem, a great many investors probably feel this way!

What People Make II – Salary Data from the BLS

Here’s a more detailed analysis of salaries and a ranking of careers based on ROI (return on investment).

The US Bureau of Labor Statistics gathers detailed data on wages across the US economy, and even breaks it down by industry and occupation:


The data is updated annually, and is available by region and industry. Though it doesn’t include information on bonuses and benefits, which can be a substantial component of compensation, the BLS data is a great starting point for quality salary data. Keep in mind that these statistics tend to underestimate the total compensation of those in corporate jobs, since bonuses and benefits are generally greatest in large companies. Where available, the median wage is provided.

Here are some highlights:

Assorted Salaries by Occupation (Incomplete):

  • CEO$170,000 (Private sector only; since BLS data excludes bonuses, real CEO pay is somewhere between 2 and 10 times this number)
  • Management Positions – $105,000 (For white-collar management positions, excluding CEOs)
  • Doctors, Primary Care – $153,000 (Family Practice, Pediatrics, Internal Medicine)
  • Doctors, Specialists$180,000 (All other specialties)
  • Attorneys – $125,000 (Private sector only)
  • Petroleum Engineers – $114,000
  • Pharmacists – $100,000
  • Computer/Software Engineers – $85,000 (Excludes technicians and other less-skilled positions)
  • Chemical Engineers – $82,000
  • English Professors – $54,000 (All post-secondary teaching positions)
  • Farmers – $54,000

How much will gas cost in 3 months?

This question is actually fairly easy to answer. If we look at wholesale gasoline futures prices, we can see with pretty good accuracy what wholesale gasoline will cost in a month or two. It takes a couple of weeks (or longer) for wholesale gasoline to make it to your local gas station, so that we can look out and see mid summer gasoline prices today.

Take a look at Bloomberg’s Energy Prices page, and you’ll see that NYMEX gasoline futures are trading at just under 3 dollars (297 cents) as of April 18th, 2008.

On average, federal and state governments add another 47 cents in taxes to this figure. The federal government adds 18.4 cents in taxes, and each state’s total gas tax is listed here.

Gasoline storage, distribution, marketing, and retail markup add a bit more than 10%, or 30-35 cents to the final price.

All told, that means that $3.80 regular unleaded is on the way for the summer in low tax states, with gas just over $4 in California, Nevada, and other states with higher gas taxes.

But don’t think I’d have it any other way – just as in the late 70’s, high gas prices will be Americans’ best incentive to ditch their gas guzzlers and start conserving.

Doesn’t Everyone Want Financial Independence?

When something aggravates you at work, wouldn’t you like to be able to walk into your boss’s office and quit with no ramifications? That is the dream of financial independence – when a person has saved enough that he can meet all the needs of daily living through investment income alone. A whole industry has sprung up around the idea, with authors, talk-show hosts, and the like extolling the virtues of living on invested money. But is this really an achievable goal for most people?
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A Slow Motion Health Care Crisis

Diabetes has risen to epidemic levels in the United States, and in certain subgroups diabetics and pre-diabetics (those showing early signs of diabetes) exceed 50% of the population. Diabetes is the fastest growing major disease in the US – a major study conducted by the New York City Dept. of Health showed that 12.5% of all New Yorkers have diabetes, and another 23% are pre-diabetic. More than one in three New Yorkers is likely to get diabetes in their lifetime, and these numbers are similar for the nation as a whole.

Among South Asian peoples, multiple studies have found that more than half of South Asians living in the West either have or are on their way to developing diabetes (roughly 20% have diabetes, and above 30% are pre-diabetic). These rates of incidence are so high that diabetes is perhaps on the verge of becoming normal for South Asians, with non-diabetics being the exceptional case!
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Politics and Race: Obama’s Hurdle

Barack Obama looks ever more likely to take the Democratic nomination for President this year, having won every race since Super Tuesday, and with polls showing him closing the gap with Hillary Clinton in the upcoming races in Ohio and Texas. This raises the question: in a general election, will Americans vote for a black candidate to be the next President of the United States?

Polls done on this topic in recent years have shown that an overwhelming percentage of Americans (94% according to a recent Gallup Poll) are willing to vote for a black candidate. While this sounds encouraging, it is important to look at this number from another perspective. What percentage of Americans are willing to vote for a white, Protestant male? Though polls on this are unavailable, the implicit answer is close to 100%, since every president but JFK (and arguably Thomas Jefferson) has been a white Protestant male, and since almost all Presidential candidates fall into this group.
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The World My Son Will Inherit

My son Vishnu was born a bit more than three months ago – and what a wonderful whirlwind it has been! Being a father doesn’t leave much time for introspection, but now that I find myself thinking further into the future, I wonder: what sort of world are we leaving our children? The usual laments can be heard throughout mainstream media, that we are running up an insurmountable debt to be born by our children, that Medicare and Social Security are both going bankrupt, that global warming will wreak havoc, and so on. While it’s obvious that the media tends toward hyperbole to draw an audience, some of these are real concerns. Here’s my short list of major American and global issues, and why I’m an optimist with regard to most:
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