Closing in on 10%

In advance of next week’s release of national employment figures for April,  pundits will argue about whether or not the national unemployment will break the 10-percent barrier.

Yet as economist Dean Baker of the Center for Economic and Policy Research observes this debate is pointless, for “it is almost impossible to envision a scenario where the unemployment rate does not cross 10.0 percent.”

Explains Baker:

Even if the economy, lost no additional jobs between April and the end of the year, then the unemployment rate would still rise to about 9.5 percent by December. If it loses 1.6 million jobs (200,000 per month) [down from the current level of 700,000 per month], then the unemployment rate will be 10.5 percent by December. At this point, this is probably about as optimistic a scenario as can be believed.

But at least national unemployment isn’t as high as it was in 1982, the year that saw the highest annual unemployment rate since the Great Depression. Right? Well, in a recent paper, Baker and his colleague John Schmitt challenge that assumption.

The official unemployment rate, however, masks two important differences between the unemployment rate in 1982 and today. The first is demographic. In 1982, the US population was substantially younger than it is today. Even in an otherwise identical economy, we would expect a younger population to have a higher unemployment rate than an older population would. The second difference is statistical …. As a result, the official unemployment rate understates the unemployment rate today relative to 1982.

Putting the February 2009 unemployment rate on a basis that is more directly comparable to the unemployment rate in 1982, the current rate rises from 8.1 percentage points to 9.5 percentage points, just 0.2 percentage points below the 9.7 percent average for 1982.