Labor Market Asymmetry In Charts

Business cycles aren’t symmetric: expansions are longer than contractions, troughs are sharper than peaks (yes, the names we use are kind of backwards there), and so on.

Labor market behavior associated with business cycles is even more asymmetric. This is shown in this panel of 3 charts:

Note in each case how quickly each of these (negative) aspects of the job market peaks, and how gradual the improvement is afterwards.

This behavior is typical. I remark in this class each semester what a colossal blunder it was for the Obama White House team to suggest, fairly constantly in the early part of their tenure, that they’d be able to fix the economy quickly. Any macroeconomist would know that’s nonsense because charts like those above are common to all recessions; I’m speculating that the claim they could defy historical regularities like this was made by politicians, bureaucrats, or marketers … but not by economists.

The same article contains another chart about another feature of measuring unemployment (but not one showing asymmetry). Over the last several years, you may have heard people say something like actual unemployment was, say, 6%, but “real” unemployment was much higher than that. This is another inane claim that a macroeconomist just would not make, but a politician, bureaucrat or journalist just might. The chart on the left shows this:

So the beige series in the chart on the left is produced by counting the people from the three groups in the top chart in a broader measure of unemployment.

The problem with this broader rate is not that it’s uninteresting or uninformative. Instead, the problem is that it doesn’t add much to what’s contained in the announced unemployment rate: it’s kind’of like adding 6% to it each month. Big deal. Macroeconomists don’t focus too much on those alternative measures of unemployment because they’re so highly correlated with the narrower measure. Highly correlated translates into a colloquial “not much new to see”.

It’s cynical, but people in the media like having a more broadly defined unemployment rate (that looks worse) because it gives them another hook to present bad news. And bad news sells advertising, because humans have this jerky interest in bad things that happen to other people. The Germans even have a word for it: schadenfreude.

Read the whole thing, entitled “Hiring Booms, But Soft Wages Linger” in the January 9 issue of The Wall Street Journal.