The Great Depression Online

The Great Depression Unemployment Rate 

According to the latest announcement from the Bureau of Labor Statistics released last Friday [May 08, 2009], employers sent out only 539,000 pink slips in April.

We say only because this was the fewest monthly job cuts in six months.  President Barack Obama looked away from the teleprompter for a moment to call this announcement “somewhat encouraging.”

We agree, in that fewer job losses are better than more.  But still, no matter how you look at it…a half million jobs were lost in April. 

And when more people lose jobs than gain jobs the unemployment rate goes up; not down. 

With this latest report, the unemployment rate’s up to 8.9 percent – from 8.5 percent a month ago.  That’s the highest it has been since 1983.

Here in the golden state things aren’t so golden…the unemployment rate’s up to 11.5 percent.  And here in Los Angeles County, things are slightly better…the unemployment rate’s just 11.3 percent.  While over in Riverside County – ground zero of the subprime mortgage bust – the unemployment rate’s at 13.2 percent.

That sounds pretty bad to us.  In fact, it sounds downright ugly.

Yet how bad are things?  And how bad could they get? 

To answer these questions, and perhaps find some perspective and instruction, let’s look to the unemployment rate during the Great Depression.

In a report titled Compensation from before World War I through the Great Depression, published by the Bureau of Labor Statistics (Compensation from before World War I through the Great Depression), we find the following…

“From an estimated annual rate of 3.3 percent during 1923-29, the unemployment rate rose to a peak of about 25 percent in 1933.  The economy reached its trough in 1933; but although unemployment had reached its peak, economic recovery was slow, hesitant, and far from complete.”  

In 1930 the unemployment rate was 8.9 percent, or equal to today.  By 1931 it was nearly 16 percent.  Then, after peaking at nearly 25 percent in 1933, the unemployment rate slowly abated…yet it was still nearly 15 percent in 1940.

Good grief…a 25 percent unemployment rate.  Today’s economy would have to get far worse to match that.  Or would it?

Before we begin, we must preface what follows:  Around here at the GDO we don’t really know what we’re talking about.  You see, often times we just make stuff up.  And often times we get things wrong.  For when we’re not mangling the facts, the facts are mangling us. 

Nonetheless, we never let such inconveniences get in the way of our conjectures.  Plus exercises in inductive reasoning, such as that below, offer us the opportunity to show off the claptrap evaluation techniques we learned in graduate school…the sort of analysis that has taken us to extraordinary successes professionally.  With that out of the way, here it is…

Unless you live in a bucket you’ve heard the idiom ‘apples to oranges’ comparison.  What’s more, you’ve likely heard it so often you no longer consider what it means.  Our suspicion is the phrase refers to comparing two things that – for their intrinsic differences – cannot validly be compared.

From what we gather, because it’s now calculated differently, comparing the unemployment rate during the Great Depression with today’s unemployment rate is an ‘apples to oranges’ comparison.  In particular, nowadays, if a worker that’s unemployed becomes discouraged after not finding a job, and stops searching for work, they disappear from the unemployment numbers.

WikiAnswers (What was the unemployment rate during the Great Depression?) explains that “…current unemployment numbers would be between 5 percent and 10 percent higher if calculated in the same way as in the past; conversely, the numbers from the 1930s and 1940s would be 5 percent – 10 percent lower if calculated using our contemporary methods.”

Five to 10 percent, in terms of unemployment rate, certainly seems like a broad range to us.  But it’s all we have to work with.  And, thus, we’ll use it as our ‘rule of thumb’ conversion factor for converting the ‘apples to oranges’ comparison to an ‘apples to apples’ comparison.

Applying this rule of thumb factor to convert today’s unemployment figures into an ‘apples to apples’ comparison with those during the Great Depression, we discover that…

…the current 8.9 percent national unemployment rate is actually around 13.9 to 18.9 percent.

…the current 11.5 percent California unemployment rate is actually around 16.5 to 21.5.

…and the current 13.2 percent Riverside County unemployment rate is actually around 18.2 to 23.2 percent.

No, this is not your granddaddy’s depression…yet.  For an 18.9 percent national unemployment rate is not quite as bad as the 25 percent national unemployment rate in 1933.  But remember, 1933 was four years into that depression.  And today, according to the National Bureau of Economic Research’s start date of December 2007, we’re hardly a year and a half into this one.

We recognize it’s not likely the timeline of the current depression will match up with the Great Depression.  And we certainly hope this doesn’t drag on for another two and a half years until it bottoms out.  

What’s certain, however, is that many good hard-working people have lost their jobs…and, regrettably, many more will before this depression’s over.


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