| BUSINESSWEEK ONLINE : JANUARY 25, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| ECONOMIC TRENDS
Deciphering the Jobless Rate Why it may not portend inflation There's little question that the U.S. jobless rate is low--slipping back to 4.3% in December and posting an average rate of 4.5% last year. At that level, the lowest full-year reading since 1969, many observers believe the employment situation should have started kindling inflationary fires some time ago. While there is no shortage of explanations why it hasn't, economists Robert Horn and Philip Heap of James Madison University believe one is that the official unemployment rate exaggerates the strength of economic activity. In an article in Challenge, a magazine concerned with economic issues, they point out that the age and sex composition of the labor force has changed considerably over the past three decades. Since jobless rates vary by age, and to a lesser extent by sex, shifts in the relative importance of these groups affect measures of unemployment. From 1970 to 1995, for example, teenage workers, who suffer from high unemployment, fell from 8.8% of the workforce to 5.9%. The labor-force share of men aged 45 to 64 declined from 20.1% to 15.1%, while the share of women aged 25 to 44 rose from 14.1% to 24.3%. These changes have tended to push down the reported jobless rate. What would the unemployment rate look like if the age and sex composition of the workforce had remained constant since 1970--the last time the rate came in below 5% for several years in a row? Horn and Heap estimate that it would be about 0.5% higher than today's official number. And that, they say, suggests that the threat of a pickup in inflation is even smaller than many people believe. BY GENE KORETZ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
INTERACT E-Mail to Business Week Online | |||
