Archives For Economics

So, the unemployment rate fell to 4.9% for January. Obama supporters are in full gloat mode. Who can blame them? We haven’t seen an unemployment rate this low since February 2008.

There’s just one problem…

What often goes unreported is the labor participation rate. It’s been declining (actually, it’s been slightly increasing the last few months but is still well below what it was when Bush was in office). As of yesterday, the labor participation rate, which according the BLS is, “the percentage of the population that is either employed or unemployed (that is, either working or actively seeking work).” What does that mean exactly?

Well, let’s say we have a town of 1,000 people. Let’s say that 350 people in the town aren’t working because they are either retired or are stay-at-home parents. That means the town’s labor force is 650 people. The math looks like this:

1,000 population – 350 people who aren’t in the labor force = 650 people in the labor force

Now let’s say of the 650 people in the labor force, 600 have jobs. That means 50 of them are unemployed. Our unemployment rate would be 7.7%:

50 unemployed ÷ 650 labor force = 7.7% unemployment rate

Now let’s say six months pass and the only change is that 20 of the previously unemployed people either decided to officially retire or simply decided they no longer needed a job. The labor force would drop to 630 people. If the number of employed people stayed the same at 600, the number of unemployed would drop to 30. The new unemployment rate would be 4.8%:

30 unemployed ÷ 630 labor force = 4.8% unemployment rate

Nothing really changed except how the people were counted. Now keep that in mind as we look at the following table I put together using numbers from the BLS. I dug up the employment numbers for January 2009 (Bush’s last month in office) and plugged them into a spreadsheet along with yesterday’s employment numbers. Then I adjusted the numbers to reflect the difference in the labor participation rate. What I found was interesting.

Comparing Obama with Bush

Basically, what we can take from the above graphic is this:

The only difference between President Obama’s numbers and President Bush’s numbers is the change in the labor participation rate.

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Join me in going through their series, Economics 101.

blue-bell-logo (small)The big news in my former hometown is the fact that Blue Bell Ice Cream is finally going back on store shelves today after a nearly year-long absence due to the company’s listeria fiasco last year.

Personally, I’m not too interested in purchasing ice cream from a company that ignored health issues, but I digress.

Anyhow, one of the comments on one of the news stations I follow mentioned something about how some stores are now charging more for the ice cream than than they did before it was taken off the market. One woman added that stores were charging “more than it is worth.”

“More than it is worth”?

What does that mean?

Who decides what something is worth?

Customers do!

Although we may not like it, Blue Bell Ice Cream is worth what people will pay for it. We can’t blame retailers for wanting to profit from supply and demand. Besides, the act of raising prices will actually deter some people from buying more than they would at lower prices, leaving more for others. That way more people can get some Blue Bell Ice Cream.

Whether we like it or not, a price-driven economy rocks.

Following are the employment numbers released last week by the BLS for November.

One note: Were the labor participation rate the same as it was when President Obama took office, the unemployment rate would be 9.7%, not the 5% currently being reported. Just something to think about.

Employment Situation – November 2015
Nov-14 Sep-15 Oct-15 Nov-15
Civilian noninstitutional population 248,844 251,325 251,541 251,747
Civilian labor force 156,402 156,715 157,028 157,301
Participation rate 62.9% 62.4% 62.4% 62.5%
Employed 147,331 148,800 149,120 149,364
Employment-population ratio 59.2% 59.2% 59.3% 59.3%
Unemployed 9,071 7,915 7,908 7,937
Unemployment rate 5.8% 5.1% 5.0% 5.0%
Not in labor force 92,442 94,610 94,513 94,446

Sad…

November 13, 2015 — 3 Comments

Who teaches these kids this silliness? Where do these ideas come from? Happy Friday, everyone!

While perusing the WSJ this morning, I came across an article that stated that the unemployment rate is now down to 5.1%. Unfortunately, the labor participation rate now sits at 62.4%. When President Obama took office, that number was 65.7%. If we adjust today’s numbers using a 65.7% labor participation rate, we get an unemployment rate of 9.9%.

How so?

Let me illustrate with some numbers;

Unemployment Adjusted for LPR

To arrive at these numbers I simply took the difference in the labor participation rate and added them to the unemployed. At 9.9%, that’s nearly twice the 5.1% reported unemployment rate.

To be fair, the labor participation rate does fluctuate. Here is the history of the rate since 1948 (from the BLS):

Labor Force Participation Rate History

It peaked in the 90s, but has fallen off the cliff in recent years.

Labor Participation Rate Since Obama Took Office

Some of the drop could be due to people retiring, but certainly not all.

Dan Price, CEO of Gravity Payments, made waves when he announced back in April that his company would pay their employees a minimum of $70,000 per year phased in over two years.

The press was giddy. The DailyKos was happy.

Dan’s smiling face was all over the place (a PR stunt?)

Fast forward just a couple of months…

Gravity Payments is having troubles. Severe troubles. Some clients, fearing price increases, decided to leave. And then there was Gravity’s own employees…

…some of the most valuable employees at Gravity Payments have started to leave the company. The Times reported that two employees have left directly because of the policy. One told the paper she was initially excited about the new policy, but as she thought about the details she began to get dismayed. “He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.”

She said she presented the issue to Price along with an alternative way to raise salaries, but was met with an accusation of selfishness. So she decided to quit. Another employee, on the lower-end of the former pay range, also decided to quit after thinking through the policy. “Now the people who were just clocking in and out were making the same as me,” he told the Times. “It shackles high performers to less motivated team members.” (Source)

Bottom line: people want to be rewarded for their efforts. They want to be appreciated.

Now, some might think I’m just a tad too happy to see this company experience failure. I’m not. BUT…I am happy to see that dumb (or shortsighted) decisions have bad consequences. Had Mr. Price only thought through his decision, he might have saved himself and his company a lot of pain. I would suggest Mr. Price invest in a copy of Thomas Sowell’s Basic Economics*, which does a nice job explaining how the real world works.

Ironically, the DailyKos hasn’t followed up on the story since their original post back in April. I know, I know…it doesn’t fit their narrative.

*Affiliate Link