How high will the unemployment rate go?
The Bureau of Labor Statistics reported that there is a lot of slack building in the economy: the October unemployment rate rose to 6.5% and the total number of jobs lost in 2008 grew to 1.2 million. The question is, for how long will the labor market contract (unemployment rises)? If the contraction is anything like the contraction in 1957-1958, the unemployment rate could rise to 9.5%. You thought that I would say 1982, right? Well, read on.
I look to previous cycles for a clue as to how severe the 2008-2009 labor market contraction could be. This cycle does not have to be like previous cycles, but here we go.
I expect that the unemployment rate will rise to 7.8-8.3%: not as bad as the job destruction seen in the 1957-1958 contraction, but somewhere between that seen in the 2001-2002 and 1981-1982 contractions.
Rebecca Wilder Appendix: How I calculated the unemployment rate going forward. I use the average monthly labor force growth rate over the last 3 years to calculate the new labor force in each month. Furthermore, I allow for a 17 month contraction (the longest consecutive labor contraction in column 3 of the table) to calculate the number of people that are unemployed each month. Going forward (post October), the number of people that are unemployed is a simple average over 7 months (the remaining months in the forecast) of the difference between the implied job loss for each cycle (column 6) and the 1.2 million jobs that have already been lost to date. The unemployment rate for each month is the percentage of the labor force that is unemployed.
Originally published on November 13, 2008 at News N Economics and reproduced here with the author’s permission.
4 Responses to “How high will the unemployment rate go?”
I still see high paying jobs posted on employment sites -www.linkedin.com (professional networking)www.indeed.com (aggregated listings)www.realmatch.com (matches jobs based on your skills)Dont let them tell you the sky is falling.
Kindly review this posting in two years. It is another example of linear thinking and will serve as another illustration for the advantage of the science of nonlinear saturation macroeconomics.
Forget the “kindly review in 2 yrs” stuff. This kind of alleged analysis is already clearly ridiculous although pleasingly sophistic. It is silly to use those past recessions as guides or touchstones because none of them were world-around as this one is shaping up to be. No. We are in for something that will feel like a mini-Great Depression to most Americans, and worse than that in the rest of the world. And that assumes oil prices do NOT rise again and provide a further shock and draining of income for discretionary consumption. All in all, such “thinking” is quite stupid.
It is simply not true than none of our previous recessions were worldwide. It’s just that the world was a very different place during the Cold War when Russia and China were in permanent economic stagnation and much of the rest of the world, including India, Africa and all of South America, was undeveloped. Now, with the rise of free trade and the interdependence of a truly global economy, a downturn in the U.S. will inevitably be reflected around the world.