Is Unemployment Really Down?

unemployment_cartoonWe recently heard President Obama tout the new unemployment figures as being 9.4 % – down from 9.5%.  Several news stories and pundits have expounded on the “real” unemployment figure being much higher.  The problem lies in the way that the government reports the unemployment figures – taking into account only those that are currently on unemployment with no mention of those who are not employed but not on government unemployment. 

 

 

From The Street:

The official unemployment rate is determined by a body count. It does not differentiate between a person who works a full work week (nominally 40 hours), a reduced full-time work week (say 35 hours) and someone who works part-time (less than 35 hour per week). If the unemployment rate was calculated from total hours worked, the DOL data would produce an unemployment rate of 14.3%, defining a full work week as 40 hours. This is a decline from 14.5% for June.

Regardless of how this figure has been calculated in the past, and I fully assume that this is a normal way of doing things (meaning it probably was done the same way in the evil Bush administration) – it seems a bit misleading.   Don’t get me wrong, that rate going down is a great thing, but let’s not fool ourselves that things are better than they have been in the past.

The Heritage Foundation posted some interesting graphs back in 2004 to really dissect the unemployment rate.  The first chart shows the reported figures dating back to the late 70’s.   As you can see from the graph the highest spike in unemployment mimics downturns in the economy – not rocket science.

 

unemployment-graph

 

 When you compare this graph superimposed with other items taken into account, it brings a little different picture to the plate. 

unempcompare

 

From the Heritage Foundation article:

The unemployment rate is the preeminent measure of the intensity of labor demand. When the rate dips below what economists consider the “full-employment” rate of around 5 or 5.5 percent, then the labor market is likely overheating, driving up inflation.

But some critics contend the current (2004) low rate of 5.4 percent is a mirage because it neglects to include all the discouraged workers. The problem with that argument is the fact that BLS counts discouraged workers and even publishes an alternative “underemployment rate” called U-4, which is barely higher than the official rate. There are no more discouraged workers today then there were in the mid-1990s.

 

So what’s my point.  My point is that the problem of unemployment is a much greater problem that the government tends to tell us.  How many people dropped off the unemployment doles?  How many people are “really” out of work.   As I have stated many times before, I’m not an economist, just an observer.  A curious observer.

Of course, this is just my opinion.

Rob’s Rant

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7 Responses

  1. The government publishes extensive research on employment (and unemployment). It covers all of the factors you mentioned above – and many more – quite extensively.

    The Bureau of Labor Statistics (bls.gov) tracks unemployment using six different tracking factors defined as U1 through U6. The most often published figure is U3.

    Your post confuses “government” numbers with what is published in the media. The government publishes extensive data, quite contrary to the your point that “the problem of unemployment is a much greater problem that the government tends to tell us.”

    Unemployment science has many variables that a single figure cannot address. There is the problem of partially employed persons, the issue of how to count contractors and outsourced labor, people that are actively looking vs discouraged workers that have stopped actively looking (went back to school, stay at home).

    The statistical figures quoted define a specific model of an unemployed person and measures month-to-month, or year-to-year, employment changes based on a specific model. That allows us to make apple-to-apple comparisons.

    So for example, one of the elements in the BLS statistics is to call anyone not employed after six months a discouraged worker. That seems harsh in today’s economy, but quite generous during the 90’s. I wouldn’t want U3 changes, otherwise we could not compare today’s figures to the 90’s.

    A quick visit to the bls.gov would have revealed much more information about government data. I did not go to the HF site, but all of their charts come from BLS data. It is ironic to state that the “government” doesn’t give us good data and then use “government” data.

    I find it shocking that HF would have placed this type of spin, but then again the spin maybe your value added. Next time, a bit more research.

    http://www.bls.gov/news.release/pdf/empsit.pdf

  2. I imagine it’s a lot like living in the USSR at the fall of the Soviet Union. The statistics mean nothing. They’re all cooked up for political survival and to maintain the status quo.

    We need a fundamental restructuring of the economy, and we need to redistribute some of the wealth that has flowed upward over the past 20 years so that working families have a little something to call their own again.

    • Thanks for commenting.

      I’m just guessing that you are a Socialist. Just a SWAG on my part.

      Money flows from the top down and not the opposite. If the producers have no reason to produce there will be nothing to “redistribute” as you call it. In case you don’t know or choose to not know, wealth is already redistributed. Those in the bottom 50% pay no income taxes. Explain that one for me.

      • Rob,

        To me the chart quoted in your link under no income taxes makes no sense and appears fabricated. That is not to say that the bottom 50% don’t pay much. The chart divides all payers at the 50% mark.

        50% of what? The chart says “Percentage of Federal Personal Income Tax Paid.” Is this by the number of people? or by the amount paid? or percentage of population? or percent of revenue to the treasury?

        Why does the chart not add up to 100%

        I believe that “Survive” meant that the rich are getting richer. Controversial, yes.

        On the other hand it may mean that taxes are inequitable. Should middle Americans pay more to give wealthy Americans a break? According to your chart, Middle Americans pay 60% of all taxes. They have a much larger burden.

        The theory that the rich invest more is hockus. That’s thinking in the 1920s.

        The rich don’t build factories and employ people. First, 75% of all jobs are created by small businesses. These people are largely middle class with incomes below $100,000.

        Second, the rich invest in the stock market. Stock market funds or companies with public money goes out and expands businesses. The stock market doesn’t care if a single person with $5 million purchased stock or if 500,000 people all bought $10 stock.

        The greatest growth in America would be a substantial drop in the cost of doing business for middle income with a shift in tax burden to higher income.

        Money does not flow from top to bottom, not since the creation of the stock market. In fact, the single largest growth in the stock market has been from 401K, 90% of it from middle income.

        You may disagree, but you will not find facts that will prove anything but my assertion.

  3. Mike,

    Thanks for the information.

    Maybe I am confusing the numbers the government releases and what the media reports – but I posted a video of the President talking plainly about the “Unemployment Rate.” So who is misguiding the masses?

    As stated in this post…I am bringing up a point and asking questions (did you see the question marks? Just checking.)

    Next time, a bit more research

    I always love the condescending tone. It gives me goosebumps all over.

    The point of the whole post was to show that the media (or government) touts the lower number and ignores the bigger problem. If I were the President, I would use the lower number in my speeches – but I’m not a politician.

    The key is, what is being done to combat the problem of the real number. I think we can agree that this is a monster problem.

    Thanks for the link.

  4. The U3 number is officially called the “unemployment rate.” The statistical method used in the US is the same as that used in Canada and all or Europe.

    That number is officially the number of people looking for work as a % of the size of the workforce. There is no misleading about that. If the number drops from one month to the next, then the unemployment number has dropped.

    If you were to ask, how many people are partially employed and how that compares to previous months, you’ll have to pull the BLS report and get that number. That would be the number of fully and partially employed.

    My comment on a bit more research wasn’t condescending nor pejorative. It was meant that if you are going to blog, at least do the research.

    Your conclusion happens to also be incorrect. The unemployment number is provided each and every month since the 1960s, maybe even earlier than that. Just a month ago it was touting a higher number. Now a lower number.

    The media reads the released information and compares it to previous month(s). That is all.

    I think that there is a lot of activity that has kept this number from getting much much bigger and creating a self sustaining unemployment. Given that the government has been doing a lot – and you seem to think that they are ignoring it – I wonder how much you really can blog about on this subject (again, fact, not being condescending).

    BTW, I thought you were a conservative who thought all of this time that the government shouldn’t do anything about unemployment and that the free market was going to get it all done. What is the free market doing lately?

    My own views are that the government does not own this problem.

  5. BTW, my prediction is that we have not turned the corner on unemployment. It will continue to rise and could reach 10-11% range.

    You can say the government hasn’t done enough then.

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