A comment on my last post suggests that a search of Brad DeLong's archives is relevant to a discussion of alternative measures of the unemployment rate. The comment may be referring to this post. Brad discusses the measure of the unemployment rate that includes discouraged workers (U-4) in a response to a part of CEA Chairman Greg Mankiw's editorial in the New York Times on August 22, 2004.
In the New York Times editorial (as quoted in Brad's post), Greg writes:
The [u]nemployment [rate] has fallen, [pessimists] say, only because the economy is so bad that people have become discouraged and given up looking for work. But that also does not square with the facts. The Bureau of Labor Statistics has a little-publicized alternative measure of unemployment, called the U-4, which includes those discouraged workers. And what does it show?... [I]t peaked in June 2003 at 6.6 percent and has since fallen to 5.9 percent....In his post, Brad writes:
Here we need to do a little data analysis. The seasonally-adjusted U-4 unemployment rate started 2001 at 4.4%, rose to 6.0% by the end of 2001, continued a slow rise to 6.6% by June of 2003, fell back to 6.0% by the end of 2003, and since then has stuck at 5.9%-6.0%.
And in my post, I presented all 4 of the measures of the unemployment rate as of this month's employment report for September. U-4 is now down to 5.7 percent. The other three are down by comparable amounts in percentage points.
Neither Greg nor Brad nor I disagree with the simple fact that the unemployment rate adjusted to include discouraged workers has fallen from its peak last June. That dubious honor belongs to Paul Krugman, who wrote:
Mr. Bush will boast about the decline in the unemployment rate from its June 2003 peak. But the employed fraction of the population didn't rise at all; unemployment declined only because some of those without jobs stopped actively looking for work, and therefore dropped out of the unemployment statistics. [emphasis added]
It is not clear to me whether the commenter understands this distinction, but I hope it is clear now. Krugman's statement is false. The presence of nearby statements that happen to be true does nothing to make this particular one true. Krugman should know better, and the New York Times should have a mechanism in place to ensure the integrity of what appears on its editorial page.
Brad's post goes on to discuss the disconnect between the reading of the labor market one would get from looking at the unemployment rate and the reading one would get from looking at the growth of payroll jobs. This is a puzzle that economists, by our own admission (mine and Brad's, at least), have not yet figured out.