Rutgers professor creates dry cleaning economic indexPhoto by Dennis ZurawDry cleaners are largely indicative of the vitality of an economy, according to research conducted by Farrokh Langdana, a professor in the Department of Finance and Economics.
Dry cleaners may hold secrets about the job market and current status of the U.S. economy— at least according to Farrokh Langdana, a professor in the Department of Finance and Economics.
Alongside his MBA students, Langdana devised the Rutgers Business School-Dry Cleaning Index, a new economic index to track the unemployment rate, said Langdana, director of the Rutgers Executive MBA program.
Conventionally, he said unemployment is measured by the percentage of people who are jobless and looking for work. The labor force encompasses those over the age of 16, minus individuals not actively looking for work, but does not account for discouraged workers.
“So if are not looking for work, say you are a homemaker or a student –– you are not considered unemployed,” he said. “You are unemployed only if you don’t have a job and are looking for work.”
For this reason, Langdana believed the official unemployment rate was inaccurate. He hoped the RBS-DCI would include discouraged workers in the unemployment rate.
He thought of the idea for the RBS-DCI about one year ago while speaking with the owner of Sal’s Custom Tailors and Cleaners in Hillsborough Township.
“[My dry cleaner] told me more people were getting their shirts pressed, and that he believed the economy was picking up,” Langdana said.
This past semester, Langdana had students survey their local dry cleaner to ask owners whether business was increasing compared to six months ago.
Langdana believed the business reported by dry cleaners would indicate whether more people were looking for work by cleaning their suits to go to job interviews.
“We analyzed the numbers, and there was much more activity overall,” he said. “That means there are more people working and looking for work.”
According to Langdana’s theory, a DCI lower than 50 indicates an economic slowdown and a DCI higher than 50 indicates an optimistic economic outlook.
Langdana said New Jersey’s The Star-Ledger and NJBIZ.com have decided to publish the DCI results every six months.
The DCI is currently 62.5, which Langdana said reveals that New Jersey’s economy is climbing.
Vijaya Koneru, a second-year MBA student, helped analyze the data and calculate the results of the index. He said the most challenging part of creating the index was gathering the data from dry cleaners.
“Farrokh has a great influence in the Executive MBA community,” Koneru said. “Executive MBA alumni have enormous respect for him, which helped [us] to get enough participation and data.”
Langdana also said creating the DCI was a good way to connect with alumni, who could become involved by gathering data for the index.
“Instead of just sending them a newsletter, I invited them to be a part of this index,” he said. “So aside from just giving economic information, it’s a nice alumni outreach activity.”
Koneru said he believes the status of the economy has proven the accuracy of the RBS-DCI.
“It’s mostly accurate and reflects the current participation of the labor and executive force in the economy, both working and looking for work,” Koneru said.
But, Langdana said, the RBS-DCI has its flaws. He said one of them is how the DCI cannot account for the employed who work from home and do not need business attire, such as consultants.
“Some people do their shirts at home,” he said. “Not everyone cleans their clothes at the dry cleaner.”
Overall, Langdana said he believes the index is beneficial for Rutgers business students because it allows students to take part in economic reporting, rather than simply study business cycles from a textbook.
“We teach economics and people study the business cycles in school, and now students have a chance to be a part of the data,” he said. “I think that’s important.”
Kelly Rogers, a Rutgers Business School first-year student, said measuring economic prosperity through the business of local dry cleaners initially seemed bizarre to her, but the index provides an interesting way to measure unemployment.
Still, she says dress shirts, blouses and pants do not necessarily reflect participation in job interviews because these garments are also dry cleaned for other special occasions, such as weddings and funerals.
The results of the index are promising for college students, Rogers said.
“I, like most college students, hope to find a stable job upon graduating,” she said. “Statistics indicating decreased unemployment and increased worker mobility definitely constitute a welcomed and promising development.”