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"The Unemployment Rate Puzzle"

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Here ya go. Enjoy.

 

US Economics: The Unemployment Rate Puzzle

 

David Greenlaw – Morgan Stanley

 

March 16, 2012 5:05 PM GMT

The sharp decline in the jobless rate has been somewhat puzzling because GDP growth has averaged just +2.5% since Q4 2009 – a pace that should leave the jobless rate little changed. The disconnect between GDP growth and the unemployment rate is attributable to a significant drop in the labor force participation rate. We cite three reasons for this development:

 

1) Discouraged workers. Some unemployed individuals have become so disenchanted with their job prospects that they have stopped looking.

 

2) Demographics. Certain segments of the population have differing degrees of attachment to the labor market. For example, older individuals are more likely to be retired, and younger folks are more likely to be pursuing an education. A shift in the mix of the population can have an important impact on the economy’s overall participation rate.

3) Disability Insurance. We believe that some of the fall-off in the labor force can be explained by a sharp jump in disability insurance beneficiaries. Disability insurance beneficiaries are highly unlikely to return to the labor market.

 

The labor force participation rate might rise only a few tenths of a percentage point as job prospects improve. We estimate that about one-half of those in the discouraged worker classification will reenter the labor market but that the remainder of the fall-off in participation is more long lasting.

 

The unemployment rate should gradually drift lower if the recent run of employment gains continues. That’s a big “if.” Mild weather and other temporary factors may be contributing to the recent improvement. The results over the next few months should help to clarify the degree of underlying momentum in job creation.

 

[ATTACHMENT=4889]MS 03 16 12.pdf (76k. pdf file)[/ATTACHMENT]

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Discouraged workers. That one always puzzles the hell out of me. If someone becomes discouraged and stops looking for a job don't they loose their unemployment checks? If that is the case I just can't see how someone would just go ahead and forfeit their UE checks......... Maybe I am wrong and they still continue to collect?

 

John

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3) Disability Insurance. We believe that some of the fall-off in the labor force can be explained by a sharp jump in disability insurance beneficiaries. Disability insurance beneficiaries are highly unlikely to return to the labor market.

 

This is the one that strikes me as odd. Did more workers suddenly suffer disabilities because the economy was slowing down? Is that some kind of whiplash injury or is something a little fishy going on? Like the employers who previously laid guys off so the guys could enjoy a "paid" vacation are now colluding with those same employees to make the paid vacation permanent.

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This is the one that strikes me as odd. Did more workers suddenly suffer disabilities because the economy was slowing down? Is that some kind of whiplash injury or is something a little fishy going on? Like the employers who previously laid guys off so the guys could enjoy a "paid" vacation are now colluding with those same employees to make the paid vacation permanent.

 

I highly doubt employers are colluding with employers to help them get on disablity as that would negatively affect their experience rating for insurance.

 

 

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These are long-term unemployed whose benefits have likely already run out.

 

Oh, I thought long term unemployed people who already ran out or unemployment benefits were not counted in the unemployment numbers any longer whether they are looking for work or not. I've heard that's how it works from many people but never verified that to be correct.

 

John

 

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I highly doubt employers are colluding with employers to help them get on disablity as that would negatively affect their experience rating for insurance.

 

Those same employers saw their unemployment costs go up when they used the unemployment benefit as a vacation package but that did not stop them. It all depended on how closely related to the employee they were. I saw this happen in union shops several times.

 

I'd still like to see another plausible explanation for a sharp jump in disability beneficiaries when the economy is slowing down.

 

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