Saturday, October 30, 2010

Don't judge the jobless

USA Today article "Don't judge the jobless" (October 27th, 2010) discusses "99ers", individuals who have collected extended unemployment insurance for 99 weeks and are about to run out. The author, while attacking Robert Barro who "doesn't know what it's like to be unemployed for this long," claims:
My story isn't unusual for young professionals.
It actually appears to be quite unusual. In order to see why, we can take general U.S. statistics as a first pass. Two questions are important to finding out if someone will be a "99er." The most important is "what are the chances an individual finds a job in a given month?" (Alternatively, "how long does it take to find a job?") We can examine the job finding rate per month as approximately equal to the number of unemployed re-entering the workforce. This isn't an exact statistic, as individuals may move from job to job, but it will be rather close. The number of jobs found in a given month over the number of unemployed for that month is displayed graphically below, and is known as the "job finding rate" (click to enlarge).

How might we interpret the above graph? As of August 2010, the number of hirings/unemployed was 0.32. That is, 1/3 as many people were hired as were unemployed. Extending this logic and making a few assumptions (homogeneity, only the unemployed are hired, both assumptions we shall defend as simplifying, but not result-altering later) that only the unemployed are hired, then the average individual should spend 3 months unemployed, or 13 weeks unemployed. 33% will spend one month, 22% will spend 2 months, 15% will spend 3 months, 9% will spend 4 months, and so on. To spend 22.77 months unemployed (99 weeks) comes with a very small probability-- 0.02%. Two hundreths of one percent is rather uncommon indeed. But this is slightly wrong for a number of reasons, though it is relatively accurate as a first pass. Say 30% of those new hires come from people moving jobs. We still have the probability 0.4%, or about half a percent.

First, the author notes that they were re-hired for a four-month stint before becoming unemployed again. We can ask a similar question: "What are the chances (making similar assumptions) that someone who was hired will last for four months?" We can find this from the "job loss rate", calculated as the number of fires, or separations (depending on your preference) displayed graphically below (click to enlarge).

In any given month, about 1.75% of currently-working Americans are fired, and about 3% separate from their job (for the interested, this gives about a 33-month average for a given job, reasonable when teenagers and young adults are added to the picture). In Correction's recollection, adults spend something approximating double that on a given job. What are the chances the author will be fired within four months of finding a job? Making similar assumptions, there's a 93.2% chance that an individual will not be fired before four months. That is, the chance the author would be fired within four months (or less) was 6.8%. While not as small a probability as a hundredth of a percent, this still puts her in a very small minority.

Corrections recognizes that these calculations assume a homogeneity that is not present. However, in the author's case, we actually think these assumptions have helped her. The inability to find jobs has fallen primarily on men, the uneducated, and construction workers. The author, formerly in the information industry, a woman with a college degree, will be less, not more common. Rather than attacking Robert Barro, who "doesn't know what it's like to be unemployed for this long" for a reason, and who wrote the (text)book(s) [1] [2] [3] on modern macroeconomics, the author would be better served by spending time looking for work. Her plight does not seem as common as suggested, and it appears rather difficult to rack up 99 weeks of unemployment, especially if one is college-educated and not in construction.

There is further data about unemployment insurance that Corrections has mentioned before ("Loss of Jobless Benefits Could Lower Unemployment Rate" July 6th, 2010). Even in the depths of Pittsburgh's recession in the early 80's, where local unemployment was higher than it is now nationally, individuals suddenly found jobs when their unemployment insurance ran out (click to enlarge):

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