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Comment by websites2323 | Hacker News Reader

This has always been the case, though. The top-line unemployment rate does not, and has not ever included people who aren't looking for work. So why is Jay Powell just now losing faith in it? Why was it ok to make economic policy based on this narrow definition before?

Could it be because "not looking for work" was the result of more "natural" forces (disability, old age, etc) in years past?

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Criticism of the mainline “U-3” unemployment rate has been long-standing and widespread, though not by the incumbent party or central bankers generally. As the Financial Times piece notes, this change has “big policy implications”, an extreme understatement. The criticism comes from both the present administration and the quasi-independent Federal Reserve.

Note that unemployment in the US is measured by the Department of Labour, not the Federal Reserve, and likewise for the Fed’s other policy target, inflation — don’t measure what you regulate being the guiding principle. There are actually six measures of unemployment tracked by DoL’s Bureau of Labour Statistics, creatively named U-1, U-2, U-3, U-4, U-5, and U-6, described in Table A-15. Alternative measures of labor underutilization. Most critical and significant to this story is the determination of just who is, or is not, included in the definition of the denominator “US Labour Force”, which is now considered far too exclusionary a measure. As the article notes:

The fear is that a significant number of people will never return — and will be part of along-term economic scarring left by the pandemic.

Indeed.

> Could it be because "not looking for work" was the result of more "natural" forces (disability, old age, etc) in years past?

This is my guess.

My interpretation is that the concern is that COVID is leading to more discouraged workers than would be expected under normal circumstances, and so the top-line unemployment numbers are now understating or failing to reflect a critical impact of the pandemic.

Unsaid is that discouragement is the natural reaction to the bulk adoption of screening systems that filter out all but the most milquetoasty applicants - rendering (a rising number of) Americans increasingly unemployable.

First Time Job Applicants are one new filth class.

It’s important because the Fed is interested in the NAIRU - non-accelerating-inflation rate of employment.

Below a certain level of unemployment, the NAIRU models expect wage inflation (companies offering higher and higher wages to get new employees in a tight labor market) which drives inflation in the broader economy. This model kind of assumes that the labor force is inelastic. In reality if unemployment were low, a lot of “unemployable” or underemployed people would probably start looking for jobs, which makes it so current unemployment rates don’t accurately reflect how close we are to NAIRU.

If I understand this correctly, we are long overdue for this change, since it was reported way back in October 2019 [0] that wages, despite low unemployment, hadn't increased.

I suspect that politicians have been hesitant to poke the bear on unemployment numbers since the top-line has been so low that they could claim victory, but we are now reaching a point where the signals are so far divorced from the reality that they have no choice but to integrate something else to bring it more in line.

[0]https://www.cnbc.com/2019/10/07/that-50-year-low-in-unemploy...

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