Paul Krugman’s Op-Ed column “The Dropout Puzzle” suggests low unemployment figures are sending false signals that the economy has fully recovered. Even though the current unemployment rate at 5.0% is significantly better than the average for the last 30 years, left-leaning economists claim that the job market is really in bad shape and that the unemployment number must be hiding something. (Of course, some would consider this to be rather self-serving.)

Since the Independent Sources team is still exhausted from tackling Krugman’s most recent column  “French Family Values,” we have decided to excerpt from Scriverner.net’s excellent posting “Misleading with numbers. Or: Is today’s labor market really as weak as many claim? Let’s compare…”

Krugman’s “case” is built on a statement by Berkeley economist Bradford DeLong that four of five economic indicators tell us that the job market is not that good and only one — the unemployment rate — is reading green.

This is an excellent sound bite for left-leaning readers who aren’t interested in digging into the data enough to judge the results for themselves. Since people blindly believe that numbers don’t lie, “4 out of 5″ seems pretty convincing. (Remember how well that it worked for Crest Toothpaste). Fortunately, for Independent Sources readers, Scriverner.net had the means and methodology to dig deeply into DeLong’s claims and below is their analysis.

Scriverner.net first defined the comparison data using the most recent figures available for this recovery and  those at the same point of the prior business cycle after the 1991 recession, the same amount of time after its end–October of 1994, just about halfway through Bill Clinton’s first term.

Indicator #1: Unemployment Rate
Prior recovery: 5.8%
This recovery: 5.0%

Score 1-0 for this recovery (no surprise as everyone agrees that the overall unemployment figures are better for this recovery than the previous recovery).

Indicator #2: Long-term unemployment rate (15+ weeks)
prior: 2.25%
this: 1.58%

Long-term unemployment at this point in the prior recovery was higher even in absolute terms, 2.96 million versus 2.35 million, in spite of the work force being 17 million larger today. So the current recovery is much better on this point.

Score 2-0 for this recovery.

Indicator #3: Average real weekly earnings from pre-recession high
prior: -1.9%
this: +0.25%

In fact, during the prior recovery real average weekly wages would stay below their 1990 pre-recession high for seven years, until well into Clinton’s second term.

So a small gain today is decried as weakness — while a real decline that lasted more than seven years was the happy course to the “miracle economy”.

Indicator #4a: Labor force participation, age 20+
prior: 67.8% (unemployment rate 5.0%)
this: 67.8% (unemployment rate 4.5%)

Scrivener.net even throws liberal critics a bone and computes a “real” labor force participation rate by adding back in all those who have left the workforce to the number of “unemployed”, as dubious an idea as this may be. The results of this accommodation are:

Indicator #4b: Total labor force participation rate
prior: 66.7%
this: 66.0%

That’s a 1% difference — and under the left-leaning methodology it moves the unemployment rate for today from 5% up to a “real” 6%.

Indicator #5: Unemployed and discouraged workers as a percent of the labor force and discouraged workers
prior: 6.1%
this: 5.3%

The details of this last indicator are so voluminous to post here so you’ll have to go to Scrivener’s original post for the details but suffice to say that once again this recovery wins out.

Scrivener’s final tally is 3.5 to 1.5 in favor of the labor market of today over that at the same point in the prior “Clinton recovery”, which was on track to the miracle economy and full-fledged boom. That is context and perspective. So Krugman, et. al., please tell us again how the job market is in bad shape? Better yet, don’t.

Technorati: krugman

Suggested additional reading: Krugman’s French Connection is Really Les Miserables and LA Times Watch

This entry was posted on Saturday, July 30th, 2005 at 8:05 am by Insider and is filed under I knew I'd use my Econ major, Media. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.