Often times a low unemployment rate, when it exists, is used as a key metric for measuring the health of the economy. It is the gold standard among mainstream economists, and politicians, in assessing how the economy is doing. While it is undeniably true that unemployment should be minimized, by itself, the unemployment rate is, at best, an incomplete measure of the overall health of the economy and at worst, rather misleading and inaccurate.
My favorite analogy illustrating this point is that the Soviet Union would report zero percent unemployment during the Cold War. Many still-existing communist regimes like Cuba do very similar tactics. The thing is though, the Soviet Union’s zero percent unemployment was technically accurate, but very misleading and in no way was the Soviet Union economy robust. Hardly anybody was flocking to enter the Soviet Union, the land of zero unemployment; on the contrary, people were flocking to the U.S., U.K., and other Western, more laissez-faire economies, although the latter always had higher unemployment than the Soviet Union. Although everyone in the Soviet Union had jobs, hardly anybody was wealthy, most people were quite poor, and the country still had bread shortages and the associated infamous bread lines. Even today, if let’s say we eliminated all agricultural technological advancements and tools, practically every able-bodied person would need to physically work with his/her hands on the field to produce food. Hunger and famine would be high, and many would perish from starvation, despite near-zero unemployment.
Furthermore, the mainstream unemployment rate, the one that gets mentioned most on television, doesn’t count those who’ve stopped looking for work as unemployed, when they still should be. If people have looked for jobs, have been unable to acquire any, and no eventually quit looking, they are still without jobs or a means to generate income or feed themselves and their families, even though unemployment would be decreased. As John Williams of shadowstats.con explains here, the Bureau of Labor Statistics(BLS), stopped counting those who’ve stopped looking for work, and are worse off for it, as unemployed in 1994.
As Williams, explains, the mainstream unemployment measure, known as U-3, does not count workers who’ve been looking for work for longer than 4 weeks. Those such unemployed persons, formerly in the U-3 measure, get counted in the U-6 measure, which extends to include those who’ve been looking for a job within one year – essentially it is a longer time-frame than U-3. However, the ShadowStats Alternate counts all those who are unemployed and looking for work, as well as those who have stopped without finding jobs, which is how it should be counted. The SSA is around 23%, a level that has stayed fairly steady since 2009, as illustrated in Graph 1 on pg. 3 here. Furthermore, In page 4 of Wiliams’ report, he rightly points out that the labor force participation rate(LFPR), should be considered in conjunction with the officially reported unemployment rate. This is because, despite officially reported declines in unemployment, the LFPR in 2016 is way below 2009 levels, the peak of the Great Recession at the time. The LFPR has since not even come close to reaching its approximately 65.5% rate in 2009. Furthermore, in 2009, the civilian employment-population ratio was about 60%, a level that it hasn’t since achieved, again despite declines in unemployment.
This also includes the problem with counting part-time workers as fully employed, as the U-3 level excludes part-time workers from the ranks of the unemployed. While part-time workers may be unemployed, many of them are not wealthy and struggle to pay their basic living expenses like rent, car loans, student loans, and utilities. They also tend to be very deep in debt. The bigger point is, this is true of those with full-time jobs. If you have a job but are barely able to cover basic living expenses, or not able to cover them, then you aren’t wealthy, which means an low unemployment does not indicate wealth or otherwise good quality economic health. Despite declining employment from 2009 up to 2019, 40% of Americans can’t afford emergencies that cost $400 due to insufficient savings, a very small amount for emergencies. Thanks to inflation, the purchasing power of those who have jobs and earn income has been drastically diminished to the point that having a job often times doesn’t enable one to cover basic living expenses.
Now imagine the following hypothetical scenario: civilization has produced and now possesses affordable machines and tools that can do literally everything that requires human labor, ranging from things like growing food, cooking, cleaning the house, providing education and healthcare as well as fixing cars and appliances, to provide a few examples. While these machines and tools provide great utility and convenience, they also tend to displace labor that was previously needed, causing employment to drop, and then unemployment to likely rise too, again assuming that those not looking for work would be counted as unemployed. Just like in the case of the automobile invention running horse-drawn transportation out of business, and thereby causing the former employees to be out of their former jobs, and despite the decreased employment, the economy is better off and civilization is wealthier. Again, employment/unemployment rates are not proper indicators of either the level of wealth or the quality of the economy.
What is a better indicator of wealth and economic health is the ability of people to afford a greater quantity of consumer goods and services. As a few examples; is healthcare cheaper today than it was a few years ago, What about gasoline and housing, Do people have to work fewer hours to earn enough money to buy the same amount of goods/services? These are far better metrics and measurements for assessing the quality of the economy. After all, if goods/services are generally becoming less affordable and if more hours of labor are needed to afford the same level of goods/services, even if fewer people are unemployed, that means the civilization is becoming less wealthy and that the economy is in worse shape than previously. When taken in conjunction with these considerations, the unemployment rate could serve as a fine indicator of the wealth and overall well-being of the economy.
But TAKEN IN ISOLATION, for the reasons and explanations provided above, the employment and unemployment rates are, at best, incomplete indicators of wealth and the overall quality of the economy and are, at worst, misleading and inaccurate indicators.