Showing posts with label government shutdown. Show all posts
Showing posts with label government shutdown. Show all posts

Thursday, January 24, 2019

Georgia’s unemployment rate remains low in December, but does it matter?


Georgia’s unemployment rate was essentially unchanged in December at 3.6 percent compared to a 3.5 percent rate in November after revisions and seasonal adjustment. Speaking statistically, the 0.1 percentage point change is within the error parameters, so there was no statistical movement in the rate between November and December.

Historically, economists in the United States put a great deal of emphasis on the unemployment rate, as they saw it as a meaningful measure of the overall strength of the economy. To simplify the idea, a low unemployment rate meant a high percentage of people were employed and therefore earning income that they could use to boost the overall economy through their purchases.

Alternatively, a high or rising unemployment rate meant that fewer people were earning income and so the outlook for the economy would dim with the idea that fewer people working would buy fewer goods and services. Since about 70 percent of the U.S. economy is driven by consumer purchases, this relationship seemed to make sense.

Problems with using the unemployment rate as a measure

Over time, though, the useful correlation between the unemployment rate and economic progess is showing a breakdown.

You need look no further than the estimated 800,000 Federal employees affected by the partial government shutdown to see the problem. Those employees who are furloughed are defined as unemployed, but nearly half of the workers are being treated as “excepted” employees, which means they are working and counted as employed but not receiving pay.

Working but unpaid employees is only part of the problem with reading too much into an unemployment number.

Overall, the number of people who are no longer in the workforce continues to grow even after the recession ended. Partially this is because of an aging population with more people of retirement age. Retirees living off their Social Security, pensions, and savings have income that does not vary with their employment status. As this group enlarges, the relationship between employment and income declines.

For the 10 years ending in December 2018, nonfarm employment in the U.S. has risen by 11.4 percent, while the number of people not in the labor force has grown by 19.4 percent.

For all of these reasons, the unemployment rate no longer offers the value that it carried in the past as a barometer of the overall economy.

Using wages and income as a better economic measure

Economists must become more focused on wages and income rather than employment to judge the future direction of the economy. After all, it is income that drives household consumption not merely having a job.

By that measure, Georgia’s workers have struggled to keep up with the national average. In 2008, the average wage in Georgia was $786 per week, 7 percent below the national average. After 10 years, a Georgia worker’s average weekly wage has risen to $979 per week, but had risen at a slower pace than the nation, resulting in the gap growing to nearly 8 percent.

Using information from DeptofNumbers.com, you can see that “the current median household income for Georgia is $56,183. Real median household income peaked in 2007 at $58,234 and is now $2,051 (3.52%) lower. From a post peak low of $50,253 in 2011, real median household income for Georgia has now grown by $5,930 (11.80%)."

Real Median Household Income: GeorgiaNational


Compare this graph to the one at the beginning of this article showing unemployment rates for Georgia, and you can see that the income data provides a more valid picture of the state’s current economy.

To truly judge a state’s economic progress, ignore its unemployment rate and focus on data that provides a better description of its economic progress.