Welch Consulting

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Welcome to Welch Consulting

For over 40 years, Welch Consulting has assisted clients in matters involving employment practices and complex business litigation. Rigorous analyses with the highest standards of accuracy, clarity and punctuality make Welch Consulting the top choice for the nation’s preeminent law firms and corporations throughout the US.

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The Unemployment Rate is Higher than it Appears
Written by Stephen Bronars, Ph.D.
Tuesday, 09 September 2014

The unemployment rate has fallen from 9.0% to 6.1% in the past three years, but the official jobless rate under-estimates labor market slack because jobless workers who have given up looking for work are not counted as unemployed.  Five years into an economic recovery today’s unemployment rate is historically high, after accounting for the changing demographics of the U.S. labor force.  While the unemployment rate is just 0.1% higher than it was 35 years ago, when President Jimmy Carter had an approval rating of just 33%, this difference understates the weakness of today’s labor market in comparison to 6% unemployment rates in the 1970’s and 1980’s.

Changes in the composition of the labor force make today’s 6.1% unemployment rate more troubling because today’s labor force is older, more experienced, and more educated than it was in 1979.  These demographic shifts contribute to a lower measured aggregate unemployment rate.  If the age distribution of the labor force today was the same as it was in 1979, the unemployment rate would be 7.4%, not 6.1%.  This is because the unemployment rate today is at least one percentage point higher for each age group than it was in August 1979.

Age Group

Unemployment Rate August 2014

Unemployment Rate August 1979

16-19

19.6%

16.5%

20-24

10.6%

9.6%

25-34

6.9%

5.3%

35-44

4.8%

3.8

45-54

4.3%

3.1%

55+

4.6%

3.1%

 

In addition, today’s adult population is more educated than the population in 1979.  In 1979, about 31% of the adult population (age 25 and above) did not have a high school degree, compared to 11% of adults today.  Only 17% of adults in 1979 had a college degree compared to 32% of adults today.  Because more educated workers have lower unemployment rates, the jobless rate for adults age 25 and above would be substantially higher than in 1979 if we compare workers in the same education groups.  The 5.1% unemployment rate for adults age 25 and above would be at least 5.9% if the labor force contained as many high school dropouts and as few college graduates as it did in 1979, when the unemployment rates for adults age 25 and above was 4.1%.

Adjusting for the aging and increased education of the U.S. labor force, today’s unemployment rate of 6.1% is comparable to an unemployment rate of 7.4% or higher in the late 1970’s.  While the decline in the unemployment rate over the past few years has been welcome news, an unemployment rate even in excess of 5% is high by historical standards after five years of economic recovery.

 
The Welch Consulting Employment Index is Almost Unchanged in August
Written by Stephen Bronars
Friday, 05 September 2014

The Welch Consulting Employment Index increased slightly, from 97.2 to 97.3, between June and July as the official unemployment rate decreased slightly from 6.2% to 6.1%.  The Welch Index measures full-time equivalent employment and shows that, adjusted for population growth and the aging of the workforce, full-time equivalent employment has been roughly constant over the past five months.  The Welch Index is about 1.1% higher than it was one year ago.  In the past year full-time employment has increased by about 2.2 million, while part-time employment has declined by 100,000.  The Welch Index is based on the BLS household survey (the Current Population Survey).

The Welch Index of 97.3 indicates that full-time equivalent employment is 2.7% below its level in the base year of 2004, after adjusting for both population growth and changes in the age distribution of the labor force.  The index is about 5.4% below its peak in March of 2007.

The Welch Consulting Employment Index for women remained constant at 99.  The Welch Index for men increased from 95.7 to 95.9, as the number of men employed in full-time jobs increased by 320,000 and part-time employment of men decreased by 324,000.  The men’s index remains 6.4% below its peak in the Spring of 2007 while the women’s index is 4.3% below its pre-recession peak.

Technical Note

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch Employment Index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.