March 9, 2009
During the Great Depression the unemployment rate hit 25%. We’re flirting with 9% in California. But can you compare unemployment rates across the decades?
Obviously the unemployment rate doesn’t include anyone who stopped looking for work, so it tends to understate things. That distortion is often discussed. But there’s also a problem in comparing the rate across decades. There has been a huge surge in the number of small businesses over the past fifty years. Many are the “buy yourself a job” type, meaning your income during good years will be about the same as if you had a normal job and salary. But what happens if the economy sours and all of those people who appear to be working at their small businesses are actually using their savings to stay afloat? Can you really call those people employed?
I would argue that any self-employed person, and any small business owner who is losing money, or using savings to stay afloat, is functionally unemployed, or at least underemployed. I wonder what the unemployment rate would be if you included those people, so you had a better apples-to-apples comparison with the Great Depression.