True unemployment by mattsteinglass
June 6, 2008, 10:13 am
Filed under: Economics | Tags: ,

The brouhaha between Kathy G. at TNR, Megan McArdle at The Atlantic and Reason’s Michael Moynihan over Swedish unemployment figures highlights to me the dangers of taking points made in political discussions internal to other countries and trying to use them to score political points in your own country. Moynihan writes that all sides in Sweden “mock” the official unemployment figure of 7 percent, and that a McKinsey report in 2006 estimated the “true” unemployment figure in 2004 at 15 to 17 percent. But what would such a McKinsey analysis find for the US’s “true” unemployment figure? Economist John Schmitt of the Center for Economic and Policy Research has done the math, and it comes to 13.8 percent:

To arrive at the 15 to 17 percent “de facto” unemployment rate, McKinsey included “people who don’t work, even though they should be able to” in the pool of the unemployed. The analysis reported here accepts the McKinsey methodology and applies it to the United States. The resulting “de facto” unemployment rate for the United States is 13.8 percent, compared with the 5.5 percent official U.S. unemployment rate, and the estimated 15.5 percent “de facto” Swedish unemployment rate.

There is clearly an internal political debate in Sweden over unemployment, and that is generating a lot of stories about how the official employment rate underestimates real unemployment. But you can’t use talking points thrown off by that Swedish debate in your very different American debate unless you first go back and look at the underlying data and compare it. Otherwise you end up with nonsense like the claim that the French health-care system is “unsustainable”, pulled from French headlines, when in fact their system is in far better fiscal health than the US’s Medicare and Medicaid.

3 Comments so far
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There’s kind of a difference between a study done by a left-wing think tank and a study done by McKinsey or Rand. Judged by the standards used by the McKinsey study, America would have a higher unemployment rate than its headline figure–every country does–but nowhere near the figure Sweden does. I have a lot of problems with America’s criminal justice system, but people who are incarcerated are not, in any meaningful sense, “unemployed”. On the other hand, people who are on long term sick leave when they don’t have to be, or in government training programs that never quite end, are within the definition of “unemployment”–people who could work, but aren’t.

Comment by scatterting

Judged by the standards used by the McKinsey study, America would have a higher unemployment rate than its headline figure–every country does–but nowhere near the figure Sweden does.

So you think Schmitt didn’t really use the same standards McKinsey used to get the 13.8% figure for the US, though he claims he did? Can you substantiate that? Or do you think the difference between 13.8% and 15.5% is “nowhere near”? I left Schmitt’s imprisonment claim off here, unlike my post at Megan’s blog, because it does indeed seem a bit off — no doubt the prison population, if it were out of prison, would have very high unemployment and drive the overall rate of unemployment up, but at least some of those people would have jobs. You have to assume that overall a system that puts 3+ million people in jail is going to have more people working if 2 million of those prisoners are set free.

But that’s not the main point here — the point is that posts like the one on Megan’s blog rely on the claim “Sweden claims to have 7% unemployment to the US’s 5.5% but really Sweden’s unemployment rate is more like 15% or higher!” But if Schmitt’s numbers are right, that claim should be “If you use the official unemployment rates, Sweden is at 7% and the US is at 5.5%, but if you use a more complete measure of who could work but doesn’t, Sweden is at 15.5% and the US is at 13.8%.” Which is kind of a “So what?” thing to say.

Comment by mattsteinglass

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Comment by lu3enlightment

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