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Why do we even bother discussing the unemployment rate any more? It is now common knowledge that it does not include people who have given up on finding a job,

Why do we even bother discussing the unemployment rate any more? It is now common knowledge that it does not include people who have given up on finding a job, people who are underemployed, people who went on disability as a replacement for unemployment subsidies, etc. I think at this point we can just move on. I will state it explicitly: the notion of "expected unemployment rate at full employment" is meaningless. Whatever the supposed number is, it tells us nothing and deserves no discussion.

mistermann 9y ago
I would agree with this, governments (western at least) have distorted the measurement of so many statistics (inflation in Canada is <2% because they essentially exclude housing costs, as if that's a minor part of a typical family's budget) that historical comparisons are a joke. I've had a question about Japan for a long time I hope someone reading may have some insight: The nature of the Japanese workplace and society is so unique on the planet, does anyone know if there has ever been an in-depth economic study trying to translate some of it into numbers? For example, on one hand you have the negative economic effect of "overstaffing" (my word), or having employees doing really quite unnecessary (ignoring a variable increase in pleasantness) things. Or, staying until 10PM pretending to work. Both of these must hurt productivity numbers big time. But on the other hand, Japan enjoys a relative lack of expenses for many societal ills like various crimes, welfare, drug abuse, etc which would to a degree cancel out the above expenses. It's obviously very complex, but I wonder if anyone has ever made a competent attempt at putting some of this into numbers?
- randomdata 9y ago
  > inflation in Canada is <2% because they essentially exclude housing costs The practical month to month housing costs are included. Rent is an item in the basket of goods, as are mortgage payments, insurance payments, etc.[1] > as if that's a minor part of a typical family's budget What is missing is the "once in a lifetime" down payment made on the purchase of a home. But that happens so infrequently that it is difficult to see how spending changes over time. In terms of family budgeting it doesn't seem completely unreasonable to exclude it - you don't really need to budget for it. [1] http://www.statcan.gc.ca/pub/62-001-x/2017003/tbl/tbl-4-2-eng.htm http://www.statcan.gc.ca/pub/62-001-x/2017003/tbl/tbl-4-2-en...
  - mistermann 9y ago
    Reading that I can see how one might come to the wrong conclusion (that actual housing costs are what is used to calculate inflation), that is likely in fact the intent. The reality though is different: http://www.theglobeandmail.com/report-on-business/economy/economy-lab/cpi-doesnt-fully-measure-household-inflation-and-it-wasnt-meant-to/article15551986/ http://www.theglobeandmail.com/report-on-business/economy/ec... Think about it: how can you have ~1% GDP growth, flat or diminishing wages, but housing prices (the largest purchase any family will ever make, 10+ years of salary) rising at 5% to 30% (in extreme cases) per year, year after year after year, with no drop in other spending categories, but somehow inflation is <2%? Where is the money coming from to drive this housing bubble? So what we have here is our government deliberately misleading us on incredibly important economic matters, that are massively distorting our economy and the economic behavior of individuals.
    - randomdata 9y ago
      > Where is the money coming from to drive this housing bubble? A bubble constrained to a handful of specific markets within the country. Which, a common theme I hear is that people choose to live in those markets because their income is higher than if they lived elsewhere. It seems that the market is simply correcting on the expense side so that incomes between those locations and other parts of the country even out. If it were more lucrative to live elsewhere, people would. To put it another way, if, hypothetically, your expected revenue is $50,000/year in Toronto and $35,000/year in rural Manitoba, and your expenses are $20,000/year in each location, you have $15,000/year additional money that you can put into the Toronto housing market. On the other hand, if expenses rose to $45,000 in Toronto, then your income would actually be $10,000/year higher in rural Manitoba. You'd be hard-pressed to not consider moving for a $10,000/year raise. But the population of Toronto, and similar markets, keep on growing by leaps and bounds, which indicates that there is still extra money to be made there. Money that can eventually be spent on housing.
      - Camillo 9y ago
        Funny how these spherical cow models of perfectly efficient and fungible markets end up justifying a huge and growing transfer of wealth from the productive part of the economy to pure (and literal) rent-seekers, which is perhaps the worst possible outcome for actual economic efficiency.
tptacek 9y ago
Because none of these factors are news to economists, who do not give up measuring economies after reading a few editorials in the newspaper, and because in some very large, important economies, unemployment --- however it's measured --- is a major, justifiable public policy concern. Perhaps I'm misunderstanding your question, though.
- Camillo 9y ago
  I think you're being actively uncharitable, but I'll offer the other cheek and agree to call that "misunderstanding" instead. My objection is to the use of the unemployment rate (as defined by most governments), not to the study of the actual economic phenomenon of unemployment. We should insist on using better or less massaged indicators (perhaps the labor participation rate, though I do not want to get into a discussion of which specific indicator to use as a replacement), instead of going along with the use of deceptive statistics. If you think that is throwing the baby out with the bathwater, I retort that throwing out a field's metaphorical babies can be an appropriate punishment for deceiving the public. Surely economists, of all people, can appreciate the importance of putting the correct incentives in place.

mistermann 9y ago

I would agree with this, governments (western at least) have distorted the measurement of so many statistics (inflation in Canada is <2% because they essentially exclude housing costs, as if that's a minor part of a typical family's budget) that historical comparisons are a joke. I've had a question about Japan for a long time I hope someone reading may have some insight: The nature of the Japanese workplace and society is so unique on the planet, does anyone know if there has ever been an in-depth economic study trying to translate some of it into numbers? For example, on one hand you have the negative economic effect of "overstaffing" (my word), or having employees doing really quite unnecessary (ignoring a variable increase in pleasantness) things. Or, staying until 10PM pretending to work. Both of these must hurt productivity numbers big time. But on the other hand, Japan enjoys a relative lack of expenses for many societal ills like various crimes, welfare, drug abuse, etc which would to a degree cancel out the above expenses. It's obviously very complex, but I wonder if anyone has ever made a competent attempt at putting some of this into numbers?

randomdata 9y ago
> inflation in Canada is <2% because they essentially exclude housing costs The practical month to month housing costs are included. Rent is an item in the basket of goods, as are mortgage payments, insurance payments, etc.[1] > as if that's a minor part of a typical family's budget What is missing is the "once in a lifetime" down payment made on the purchase of a home. But that happens so infrequently that it is difficult to see how spending changes over time. In terms of family budgeting it doesn't seem completely unreasonable to exclude it - you don't really need to budget for it. [1] http://www.statcan.gc.ca/pub/62-001-x/2017003/tbl/tbl-4-2-eng.htm http://www.statcan.gc.ca/pub/62-001-x/2017003/tbl/tbl-4-2-en...
- mistermann 9y ago
  Reading that I can see how one might come to the wrong conclusion (that actual housing costs are what is used to calculate inflation), that is likely in fact the intent. The reality though is different: http://www.theglobeandmail.com/report-on-business/economy/economy-lab/cpi-doesnt-fully-measure-household-inflation-and-it-wasnt-meant-to/article15551986/ http://www.theglobeandmail.com/report-on-business/economy/ec... Think about it: how can you have ~1% GDP growth, flat or diminishing wages, but housing prices (the largest purchase any family will ever make, 10+ years of salary) rising at 5% to 30% (in extreme cases) per year, year after year after year, with no drop in other spending categories, but somehow inflation is <2%? Where is the money coming from to drive this housing bubble? So what we have here is our government deliberately misleading us on incredibly important economic matters, that are massively distorting our economy and the economic behavior of individuals.
  - randomdata 9y ago
    > Where is the money coming from to drive this housing bubble? A bubble constrained to a handful of specific markets within the country. Which, a common theme I hear is that people choose to live in those markets because their income is higher than if they lived elsewhere. It seems that the market is simply correcting on the expense side so that incomes between those locations and other parts of the country even out. If it were more lucrative to live elsewhere, people would. To put it another way, if, hypothetically, your expected revenue is $50,000/year in Toronto and $35,000/year in rural Manitoba, and your expenses are $20,000/year in each location, you have $15,000/year additional money that you can put into the Toronto housing market. On the other hand, if expenses rose to $45,000 in Toronto, then your income would actually be $10,000/year higher in rural Manitoba. You'd be hard-pressed to not consider moving for a $10,000/year raise. But the population of Toronto, and similar markets, keep on growing by leaps and bounds, which indicates that there is still extra money to be made there. Money that can eventually be spent on housing.
    - Camillo 9y ago
      Funny how these spherical cow models of perfectly efficient and fungible markets end up justifying a huge and growing transfer of wealth from the productive part of the economy to pure (and literal) rent-seekers, which is perhaps the worst possible outcome for actual economic efficiency.

tptacek 9y ago

Because none of these factors are news to economists, who do not give up measuring economies after reading a few editorials in the newspaper, and because in some very large, important economies, unemployment --- however it's measured --- is a major, justifiable public policy concern. Perhaps I'm misunderstanding your question, though.

Camillo 9y ago
I think you're being actively uncharitable, but I'll offer the other cheek and agree to call that "misunderstanding" instead. My objection is to the use of the unemployment rate (as defined by most governments), not to the study of the actual economic phenomenon of unemployment. We should insist on using better or less massaged indicators (perhaps the labor participation rate, though I do not want to get into a discussion of which specific indicator to use as a replacement), instead of going along with the use of deceptive statistics. If you think that is throwing the baby out with the bathwater, I retort that throwing out a field's metaphorical babies can be an appropriate punishment for deceiving the public. Surely economists, of all people, can appreciate the importance of putting the correct incentives in place.