The Corner

Low-Income vs High-Income Unemployment Rate: A False Debate

In the last two days, there have been some noises in the blogosphere (see the Huffington Post here) about a new study showing that low-income workers got hit more severely during the recession than high-income workers (low-income workers suffer an over 30 percent unemployment rate, workers making about $138,000, only a 3.2 percent.)

See this post, for instance. This data is supposed to help us refocus our attention on what matters: Poor vs Rich.

The researchers conclude that “what has been missing from the public debate over the labor market crisis is an honest and detailed analysis of which American workers have been most adversely affected by the deep deterioration in labor markets.

I disagree. The real debate that is missing so far is not that low-skill workers are vulnerable to recessions (duh) but that public-sector employees still have jobs and private employees don’t.

Look at the data: According to the Bureau of Labor Statistics, from the passage of the American Recovery and Reinvestment Act to the end of December, private industry has suffered a net loss of 2,610,000 employees (or 2.3 percent of total private employment), while the government has only lost 46,000 employees from its payroll (or 0.2 percent of total government employment). In other words, most of the job losses occurred in the private sector rather than in the public sector. This means that on average, the number of private jobs lost for every private job created is far greater than six.

Oh and by the way, public-sector employees are also the ones benefiting from the stimulus funding, not the private-sector employees. The job-creation data reveals that most of the jobs were “created or saved” in the public sector. Based on data from Recovery.gov, we find that of the 640,000 jobs the administration claims to have created with stimulus funds, only some 140,765 of them were private jobs.

Now, I would love to see a post by Ariana Huffington titled “No Labor Market Recession For America’s government employees, Private Workers Hit Hardest.”

Getting back to the new study data, it is hardly surprising that lower skilled workers are affected severely in recessions. This is a reason given to people for getting more degrees. Second, the data doesn’t take under consideration the large number of higher income workers who have decided to exit the labor force during the recession and either retire, go back to school, or stay at home with their kids. 

As for the problem with the data in the study, it is misleading in several ways. One of them is explained by the fifth comment here:

It is important to note that while it appears at first glance that the lower two deciles have been hardest hit, I believe this merits further analysis. If you look at the percent increase in unemployment rates you can see a much more accurate picture of who has been impacted and at what levels. See my analysis:

$12,160 or less: +67%

$12,160 – $20,725: +78%

$20,725 – $29,680: +104%

$29,680 – $39,000: +117%

$39,000 – $50,000: +125%

$50,000 – $63,000: +110%

$63,000 – $79,000: +94%

$79,000 – $100,500: +108%

$105,000 – $138,700: +100%

$138,700 or more: +100%

From this perspective you can see that not only were the hardest hit deciles between $29,680 and $50,000, but the lowest two deciles had the smallest increase in unemployment rates.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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