Exercise 5.1:
How representative is "the" unemployment rate"?

Broad measures of economic activity such as the unemployment rate are useful for describing general economic conditions but they often hide the variability in economic experiences facing various groups within the economy. Given this fact, and the importance of aggregate unemployment rate data in economic policymaking, we need to ask: how representative of labor market conditions is the unemployment rate data?

The answer to that question might depend on whom you are talking to. Depending on your age or your ethnicity, the overall unemployment rate may not accurately reflect your chances of finding a job. Take, for instance, the labor market experience of blacks and teenagers, two groups whose unemployment rates have historically been significantly higher than the overall unemployment rate reported in the news. As the data in the table below indicate, the overall unemployment rate (all civilian workers in the labor force) fell dramatically during the economic expansion of the 1990s, as did the unemployment rate for teenagers and blacks. The growing economy provided more job opportunities for workers of all ages, educational levels, genders, and ethnicities. However, the widely-reported unemployment rate overlooks the fact that unemployment rates for teenagers remain about three times higher than those for the labor force overall, while the unemployment rate among blacks is about two times higher.

	Civilian unemployment rate (% of labor force)
							Teenage Unemp. Rate / Overall Unemp. Rate		Black Unemp. Rate / Overall Unemp.Rate
Year	All civilian workers		Teenagers		Blacks
1990	5.6		15.5		11.4		2.77		2.04
1991	6.8		18.7		12.5		2.75		1.84
1992	7.5		20.1		14.2		2.68		1.89
1993	6.9		19.0		13.0		2.75		1.88
1994	6.1		17.6		11.5		2.89		1.89
1995	5.6		17.3		10.4		3.09		1.86
1996	5.4		16.7		10.5		3.09		1.94
1997	4.9		16.0		10.0		3.27		2.04
1998	4.5		14.6		8.9		3.24		1.98
1999	4.2		13.9		8.0		3.31		1.90

Knowing what economic aggregates like the unemployment rate measure (and overlook) is important not only for gaining a deeper understanding of the economic statistics that are reported in the news each day, but also for understanding discussions of economic policy. For example, the Federal Reserve, citing a 30-year low in the unemployment rate during 1999, became concerned that the economy was expanding too fast, and took measures to slow the economy down. However, unemployment rates for teenagers were still nearly 14% and black unemployment, despite a 6% drop during the 90s, was still 8%, near the level of the overall unemployment rate following the 1990-91 recession.

While macroeconomic aggregates give a broad view of the health of an economy, it is important to realize that there are a variety of economic experiences that are hidden by these measures. In macroeconomics we typically focus on the aggregates in order to get a better understanding of the overall economy, but you should not lose sight of the fact that behind these statistics are individuals and groups whose experiences may or may not be fully reflected in the numbers.