On unemployment

There are some basic facts we should be aware of before starting any discussion on unemployment.  Most important is that the unemployment rate as discussed in the media is a contrived number, produced by monthly telephone surveys.  If someone has been looking for work for more than four weeks, the Current Population Survey does not count them as actively looking for work, and does not then officially consider them unemployed--in the minds of the CPS, they are no longer part of the labor market at all.

The implication of this in a period of economic downturn is that anyone unemployed for more than a month is not counted in the official unemployment rate.  The recent upward adjustment of the unemployment rate does not reflect those people who have been without work for more than a month, making the real unemployment rate much higher.

Since those people are not considered part of the labor market, by dint of the way the figure is calculated, they could be counted once again if they meet the criteria for looking for work.  Thus the economy could improve, and the unemployment rate could go up as more of those who were not counted are now counted.

Given this, the unemployment rate is not a reliable number.  It depends on phone calls, so does not reflect those who do not have phones, or do not answer when they are called.  The CPS does not call everyone in America who has a phone either, but rather conducts a small sample and extrapolates that information out to the general population based on what is known about the population's demographics.  Those demographics are known from the US Census, which is conducted once every ten years.  People will move, die, be born, etc during that time, and so the demographics of the nation change between the census.  Having just completed the census, the information we have on the nation's demographics is as accurate as it ever will be until the next one, but get less accurate with every year that passes.  Therefore the information gleaned from the phone surveys is less accurate with every year that passes, as well.

A literature review on unemployment issues shows that the five most salient points about unemployment are:
1. The individual's skill level--how much they know, and how much their skills match what employers are looking for.
2. Spatial accessibility--how physically close a person is to where jobs are.
3. An individual's social networks--who they know that is working for an employer that is hiring.
4. Immigration--competing especially with the lower rung of the economic ladder, or those with the least/no skills.
5. Outsourcing--employers move factories overseas in pursuit of ever cheaper labor costs.

In the US the first issue is addressed through public or private education.  Once beyond college age, there is little public assistance for the further construction of skill sets; neither is there for so called "blue collar" jobs, which are largely left to private, for-profit schools.  An individual may take out student loans to attend these schools (or go back to college).  The US is one of the only industrialized nations in the world where job retraining is not "free."  Sweden, for example, makes enrollment in such programs mandatory for anyone receiving unemployment benefits.

Spatial accessibility is especially tough for workers in rural areas and Indian reservations as they tend not to be close to where the most work is located.  Even within metropolitan areas, however, are pockets of low-income neighborhoods that have spatial accessibility problems.  Competition for residents of these areas is fierce, as they tend to have the least skills and are therefore competing against immigrants and outsourcing for jobs.  Being low-income workers, spatial accessibility can be overcome by public transportation systems, however studies show that the further a person lives from where they work, the more they make.  In other words, the longer the commute, the more money made by residents of low income neighborhoods.  This indicates that there are few to no local jobs to be had in these areas and that the best paying work is elsewhere.

Social networks are important, as many studies have shown work depends less on what you know than who you know.  At its core, social networks link the supply side of labor markets (workers) with the consumers of labor (employers).  In lieu of social networks, the want-ads in newspapers or websites can substitute.  However, when we look at the social networks of those in low-income areas, they can only lead the worker to more low-income work.  Similarly, the children of immigrants connected to their parents' social networks are at a disadvantage as well.  If your social network is full of manual labor, for example, it will likely lead you to more manual labor.

Taking all of this into account, putting people to work is more difficult than instituting a single government policy.  Section 8 housing is a step in the right direction, as is disbanding and disseminating public housing residents so poverty is not so concentrated.  A jobs retraining program would add flexibility to the labor market that it is currently lacking.  In high school it is important to supply students with alternative social networks that give them a chance to move up the economic ladder out of poverty.  Finally, the issues of immigration and job outsourcing need to be addressed, though how exactly is a complicated subject with geopolitical and economic repercussions.  None of these solutions are band aids, but address the core problem of unemployment; as more than band aids, they will take time to implement and perfect.