Unemployment Extension Doesn't 'Boost Jobless Rate'

The Wall Street Journal proclaims: "Unemployment Extension Could Boost Jobless Rate" in a headline today. This is misleading. While there's some economic debate about whether an ever-lengthening timeline for jobless benefits will prolong unemployment, that's not what this article is arguing. In fact, it claims that the unemployment rate is actually lower than it appears, because jobless benefits have been extended for so long. Huh?

Here's a blurb:

Extending jobless benefits could inflate the official unemployment rate -- even though more people aren't out of work.

The government's unemployment rate counts only workers who say they're looking for work. To qualify for benefits, a person has to say he or she is looking for work. When benefits were less generous - or simply unavailable - more jobless workers indicated that they had given up looking, and thus weren't officially counted as unemployed.

Michael Feroli, a J.P. Morgan Chase Bank economist, says this phenomenon may have boosted the reported unemployment rate by 1.5 percentage points.

So first of all, despite the misleading headline, this article isn't arguing that unemployment rates are higher because are collecting jobless benefits instead of looking for a job. It's point is just about the statistic itself. It says that in the past, since jobless benefits weren't provided for as long a period of time, the unemployment rate might currently look higher now, by comparison. A better headline might have been something like: "Jobless Benefits Could Skew Labor Market Picture."

This point might matter to an economist performing a statistical analysis that takes into account past economic cycles. But the official reported unemployment rate should be reflective of labor market turmoil. In that sense, the unemployment rate as currently calculated more likely underestimates the struggle so many Americans face. The broader measure of unemployment was 16.5% for June. There are a lot of Americans who are so discouraged they have temporarily given up on finding work or can't get anything full time. The government doesn't consider them unemployed, even though they certainly are in spirit.

If economists want to make their own adjustments to better compare one economic cycle to another for their own analyses, then they certainly can do so. But to revise the unemployment rate down further would just make it an even less realistic indicator of the labor market's deep problems.