Many statistics come out of
Washington D.C. on a regular basis that determine the health of the countries
economy and are a driving force for Wall Street. The Unemployment numbers that come out every
month is one of the biggest since it is an index that is released every month
vice every quarter like GDP estimates.
This is also the index that many politicians especially the president
use to make a claim that their policies are or are not working when it comes to
job creation and growth. Many in the
general public get excited and feel at ease when they hear that the
unemployment rate has dropped; the issue with this is that for the most part
the general public does not understand how the unemployment numbers are
actually calculated and how easy it is to skew the numbers. Granted any numbers can be skewed,
statisticians can make any number say what they want it to say, and lets face
it economists are nothing more than statisticians that use a little bit of
sociology and deal with money (and yes I realize that while I’m not a true
economist yet, I do the same thing).
Unemployment numbers are
calculated via surveys that are conducted by the Census Bureau. These surveys are supposed to be non-partisan
but sometimes (most of the time), they aren’t.
Every month the Census Bureau contacts 60,000 households and asks them a
series of questions regarding various factors, such as how many people over the
age of 16 live in the house (any individual over the age of 16 is considered
“Working Age Population”); how many have worked in the past week, how many have
looked for a job in the last 4 weeks, and so on. They also ask questions pertaining to
consumer confidence and the consumer price index. On the surface to many people, this seems
like it could be an accurate representation of the country as a whole, and
while that could be true it’s not necessarily very accurate. The Census Bureau falls under the Department
of Commerce, which is in the Executive Branch of government, headed by the
President. This is where partisan
politics comes into play. Lets say that
the President is in a hard spot, maybe a scandal, maybe an upcoming
reelection. In order to make the numbers
look better, the census bureau can decide to call households that live in
suburban America, places where historically unemployment hasn’t been as high
and not call as many households located in the inner city where unemployment is
a larger issue. This would result in a
“lower” unemployment number than the previous month and the mainstream media
would praise the government for doing something amazing; when in actuality
nothing was really accomplished. Once the survey’s are conducted the numbers
are handed over to the Bureau of Labor Statistics (BLS); the BLS is responsible
for breaking down the numbers and making the calculation, but remember they do
not truly know how accurate the numbers are because the numbers were gathered
by another agency.
Looking at how the numbers
are actually calculated can cause some to raise their eyebrows and ask the
question, how does this even make sense? There are several sets of numbers that have
to be broken out in order to come up with the calculations:
|
Category
|
Definition
|
|
Working-Age Civilian
Population
|
Anyone in a household over
the age of 16 not in the military.
|
|
In The Labor Force
|
Either currently working
or has looked for work in the past 4 weeks.
|
|
Employed
|
Worked at least 1 hour in
the last week
|
|
Unemployed
|
Not working but has looked
for a job in the past 4 weeks.
|
|
Not in the Labor Force
|
Has not looked for a job
in the last 4 weeks.
|
While the categories seem to
be straightforward, they tend to understate statistics, there are 3 groups that are vastly misrepresented within the survey:
Part-Time workers are classified as “working”
but most are not working enough to support themselves or families and thus are
still relying on government assistance, yes they’re working and the
unemployment number goes down because of it, since they’re still relying on the
government for help with housing and food, how exactly has that helped improve
the economy?
Under Employed, those that have an advanced degree say in
engineering, yet are working as an office assistant because that is the only
job they could find. In Economics, we
talk about “Full Potential” when it comes to things such as the economy, GDP,
and unemployment. Full Potential means
that everyone is employed in a position that is commensurate with his or her
education and/or experience. In the case
of the under employed worker they are not at their full potential and therefore
should not be classified as truly employed.
Discouraged Workers, are those that are
unemployed and more than likely have been for an extended period and have just
given up on looking for employment, because they feel there is nothing out
there for them. Given the BLS definition
of “In the Labor Force” vs “Not in the Labor Force”, they are not in the labor
force thus causing the unemployment number to drop, all because they haven’t
looked for a job in the past 4 weeks.
This could be caused by any number of reasons, they were too sick to
work or maybe their spouse works and the family decided to go on a
vacation. No matter the reason, this
group of people should still be counted as in the labor force in order to show
a truer unemployment number. I could go
on and on about unemployment benefits and changes in the numbers but I will
leave that for another post probably in February when I can prove a theory that
I have.
Here is a graphic that
illustrates how the percentages are calculated (I figured it would be easier to
use picture than try to explain in words):
I hope this helps to
illustrate the formulas used for the unemployment numbers, but more than that
I’m hoping that people will take the numbers that come out of D.C. with a grain
of salt. It is not hard to make the numbers
say whatever will help the current administration gain approval rankings.
Also remember that in order
to claim unemployment benefits you must be actively looking for a job, with the
recent cut in unemployment benefits I’m almost willing to be that all of a sudden
the unemployment numbers will drop and the government and mainstream media will
praise the president for doing wonderful things to spur job growth, when in all
reality all that has happened is people have moved from one category to the
other, thus lowering the percentage.
