What Does the Unemployment Rate Indicate About the Weak Labor Market?

Rebecca M. Blank
Rebecca M. Blank Chancellor - University of Wisconsin-Madison, Former Brookings Expert

April 10, 2008

Chairman McDermott, Ranking Member Weller, and distinguished members of the Committee, I appreciate the opportunity to talk with you today about the state of the labor market and its implications for policy. I plan to make several remarks about the labor market and its current problems and then discuss the implications of these facts for the debate over extended benefits.

The discussion of potential recession has dominated the economic news over the past few months. Yet the unemployment rate – one of our most-utilized measures of labor market weakness — has stayed relatively low. It was at or below 5% for the past two and a half years; the data release last Friday showed that it crept up to 5.1% in March 2008. While a significant increase, this is still relatively low compared to past recessions.

Some have argued that this relatively low unemployment rate means that it’s too early to think about extended benefits. In the past few recessions, extended benefits have not been enacted until unemployment rates were at six percent or higher. I want to make two primary points in this testimony. First, the current unemployment rate cannot be easily compared to past unemployment rates. If we had a similar population in the labor force today as in earlier periods, our current unemployment rate would be much higher. Second, a variety of other labor force measures suggest that those Americans who lose their jobs are facing serious economic problems.