Is Real Cal Unemployment At 25%?
SEPT. 14, 2010
By JOHN SEILER
Welcome to the desert of California jobs.
Officially, California’s unemployment rate was 12.3 percent for July, the latest month calculated. That’s bad enough. But the real number is twice as much: at least 25 percent, a Great Depression level.
The reason for the discrepancy lies in the way the government counts “unemployment” at the state and federal levels. Different — and I would contend more accurate — numbers can be found at Shadowstats.com, in San Francisco, a site that is a gold-mine of information on what’s really going not just with employment, but inflation and economic growth. The site notes, “The problem lies in biased and often-manipulated government reporting.”
The Bureau of Labor Statistics, part of the U.S. Department of Labor, gets us part-way to what are the real unemployment numbers. It puts up a Web page with the ungainly title, Alternative Measures of Labor Underutilization for States, Third Quarter of 2009 through Second Quarter of 2010 Averages.
The BLS tabulates six measures of unemployment, U-1 through U-6, which are defined there. We need concern ourselves with only two of these: U-3 and U-6. I’ll discuss each, then take a step beyond with additional analysis from John Williams of Shadowstats.com.
All the numbers here are for the year-long period from the third quarter of 2009 through the second quarter of 2010. For this year-long period, the U-3 numbers are 12 percent for California and 9.7 percent for the U.S., slightly different from the monthly numbers cited above. I’ll use these yearly numbers for the rest of this article.
The U-3 unemployment number is the one most cited, and which is cited at the top of this article. The BLS defines it as “total unemployed, as a percent of the civilian labor force.”
“There is a definition problem,” Esmael Adibi told me; he’s director of the A. Gary Anderson Center for Economic Research and Anderson Chair of Economic Analysis and maintains a close watch on the California economy for Chapman’s biannual Economic Forecast. He said the unemployment numbers are made based on surveys of the population. The U-3 number uses “a definition of being ’employed’ that you worked one hour per week for pay. That 9.7 percent number includes a whole bunch of people who are working part-time. Always we have this definition problem. True unemployment is much higher.”
He added that California has suffered worse than almost all the states, with only Nevada (13.5) and Michigan (13.2) suffering higher unemployment rates, as measured by U-3. Whereas Nevada’s problem is the collapse of the tourism and gambling business during the Great Recession, and Michigan’s is the crash of the auto industry, California’s centers on the dilapidation of the related construction and mortgage industries.
“These two fields have very unique skills not applicable to any other industry,” he said. “Even if those who lost their jobs in those industries have jobs now, it’s not in that sector. Being in escrow is a good skill, but you can’t transfer it.” Further, a lot of escrow workers are still struggling in that field, working only a couple of hours a week part time, yet are considered “unemployed” under the U-3 number.
Worst unemployment in the nation
The next number is U-6, which the BLS defines as:
total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
The U-6 number for California, for the latest year covered, was 21.9 percent. So, it’s 9.9 percentage points higher that the U-3 number — nearly double the official rate.
“The difference here is that they include a variety of things in the U-6 number,” Williams told me, such as those that are marginal workers. These folks want to work full-time, but can’t.
“In California, if state workers are put on furlough, they’re considered to be working part-time for economic reasons,” and so are not included in the U-3 number. But, of course, they’re not really working. So that’s why they are included in the U-6 number.
Of the 50 states, for the U-6 number, California’s 21.9 percent unemployed actually is the worst, even higher than the U-6 rates for Michigan (21.6 percent) and Nevada (21.5 percent).
The best state with the higher, U-6 number, by the way, was North Dakota at 7.8 percent, about a third of the California number. Maybe it’s the snow.
The Shadowstats number: more than 25%
But Williams goes beyond even the U-6 number to calculate unemployment. He said that, before 1994, the official numbers used to included discouraged workers, “those who had given up looking for a job. Today, if you can’t find a job in more than 12 months, you’re taken off the rolls completely. I try to estimate the discouraged worker.”
He said that, at the national level, including discouraged workers — as was done before 1994 — would add about 5 percentage points to the unemployment rate. “I don’t have a separate survey for California,” he said. “There’s no way to directly measure it.”
But if the BLS’s U-6 number for California is 21.9 percent, then adding 5 percentage points would put the actual unemployment rate at 26.9 percent. To be cautious, we can say it would be 25 percent.
“California’s unemployment rate could be 25 percent,” Williams calculated. “During the Great Depression, unemployment nationally was 25 percent at its worst in 1933. We’re about as bad as we’ve seen in the post-World War II era.
Even though I like to use statistics in my articles, as a check I also try to use what my late father called “good old common horse sense.” I did a tally of my friends and acquaintances in California. About a quarter of them are completely unemployed or working only part time, but would like to work full time. Several were in the once robust, not bust, escrow industry. One friend was making about $150,000 a year as a mortgage broker, but now makes a fraction of that cleaning houses and doing odd jobs — when possible. So the 25 percent unemployment number meets Pop’s “horse sense test.”
From under the rubble
Why is California, in reality, mired not just in a bad recession, but a slump of Great Depression proportions? And how can we get out of it?
“The state of California probably is one of the most difficult in which to run a business,” Williams said. “There are health-insurance issues. State regulations generally are more severe than federal regulations. A business looking to locate between New Hampshire and California, might look at California, then look at a state that is generally less expensive — where there’s not as much paperwork. There are many disincentives for a business to stay in this state.”
Adibi agreed. “We have to stimulate job creation,” he urged. “The only way to do that is private job creation. The president is backing a middle-class tax cut. But he’s vague on business taxes, such as long-term capital gains and dividends.” Obama also is favoring increasing taxes on the wealthy. But, Adibi said, “This is not the time to raise taxes on any group. The Bush tax cuts should be extended.” It is the wealthy who are most likely to invest in new business and jobs creation. Raising their taxes leaves less money available for that.
As to California, he said, “Most problems are coming from the public sector. AB32 is a problem.” AB32 is the Global Warming Solutions Act of 2006. It mandates that greenhouse gas emissions be reduced by 25 percent by 2020. Opponents contend that AB32 is a major jobs killer; while proponents say it would give California the lead in creating “green” jobs.
Part of the uncertainty is whether AB32 will be effectively be repealed by Proposition 23, on the November 2 ballot.
“And there’s no budget,” Adibi concluded, even though the state constitution requires one to be passed by June 15. “Republicans insist on no tax increases in the budget, but eventually will cave in. Who will get hit with higher taxes? It’s not clear, but probably sales taxes, gas taxes and the vehicle license fee will increase.”
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