NEW YORK (Reuters) – When economists tell us the current U.S. slump could never turn into another Great Depression, they all point to one thing: one of four Americans was out of work in the 1930s.
But since the definition of joblessness has changed over the years, this expert assessment might be too rosy.
As many as 25 percent of Americans were unemployed during the days of bread lines that symbolized the Depression, but that figure is more than three times the current 6.7 percent unemployment rate, the economists say. Even the most pessimistic estimates only foresee the rate rising barely above 10 percent.
“We are in a very, very different place than the U.S. economy was in the 1930s,” James Poterba, president of the National Bureau of Economic Research told a recent Reuters Summit.
Or are we? Figures collected for Reuters by John Williams, from the electronic newsletter Shadowstats.com, suggest that, while we are not there yet, the comparison is not as outlandish as it might initially seem.
By his count, if unemployment were still tallied the way it was in the 1930s, today’s jobless rate would be closer to 16.5 percent — more than double the stated rate.
“I expect that unemployment in the current downturn, which will be particularly deep and protracted, eventually will rival, if not top, the 25 percent seen in the Great Depression,” Williams said.
He and other critics have one particular sticking point with the current way of measuring unemployment: the treatment of discouraged workers.
Under President Lyndon Johnson, the government decided individuals who had stopped looking for work for more than a year were no longer part of the labor force. This dramatically decreased the jobless rate reported by the government.
“Both part-time workers wanting full-time work and discouraged workers tend to make the unemployment rate lower than it would otherwise be,” says Robert Schenk, professor of economics at St. Joseph’s College, Indiana.
The latest report, due on Friday, is expected to show another month of more than half a million job losses in December, and a jump in the unemployment rate to 7 percent.
However, some economists, including Kenneth Rogoff at Harvard University, now say joblessness could top 11 percent. Under Williams’ methodology, that picture might look much more like the Great Depression.
(Reporting by Pedro Nicolaci da Costa; Editing by Kenneth Barry)