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Source link: http://archive.mises.org/13826/how-to-decipher-the-governments-unemployment-data/

How to decipher the government’s unemployment data

September 7, 2010 by

The people over at the Calculated Risk blog had a helpful post today that links to the BLS’s primer on the differences between the “Establishment” employment data and the “Household” employment data.

Economist John Williams has often been referenced on these issues, and his site, Shadowstats.com is indeed helpful. However, if you want something straight from the BLS’s mouth, the primer is very useful.

This will help you understand a bit more about the establishment survey’s somewhat infamous “birth/death” model that assumes new businesses (and jobs) are created every time an existing business goes out of business. This sort of modeling, of course, makes employment look better than it is in the current environment.

Calculated Risk also credits a recent blog post by Nancy Folbre that looks at the futility of examining the unemployment rate as a measure of real-world job market health.

While one should always view government employment data with a critical eye, one need not debate the sampling models to see immediately that using the unemployment rate to discuss the job markets rather misses the point.

The unemployment rate is a function of both total employment and the labor force. Indeed, in a sense, it’s just the delta between the total size of the labor force and the total number of jobs available.

But how big is the labor force? The labor force size depends on whether a person is actively looking for work or not. So, if a discouraged worker, or say, a recent college grad who hasn’t even bothered to look for work given the economic conditions, reveals his or her lack of job seeking, that person will not be counted as a member of the labor force.

So, when we subtract all the older “retired” people who’d rather not be retired, the young people who are ecstatic with an unpaid internship or worse, and all the discouraged workers, we end up with a big decline in the labor force, and this is why labor force participation is at historic lows. As long as that’s the case, that delta between labor force size and total employment will be smaller than if those people thought they could find actual full time employment, looked for work, and were counted as members of the labor force.

Folbre’s point is that we should look to total employment for a real gut check on how the economy is doing, and not to unemployment. Taking Folbre’s advice, we see that there aren’t new jobs being created, and all the while high schools and colleges are graduating more and more people every December and every May, and as wages fall, spouses and non-wage earners in single-wage households may have to go out and look for work.

All of this in the face of extremely poor job creation.

Also, if we look at private employment for a sense of job creation by the private sector, we see that there are now fewer private-sector jobs than there were a decade ago:


Scott Ashby September 7, 2010 at 1:26 pm

Taking into consideration all of the discouraged workers along with everyone else paints an even uglier picture. It’s like real estate with all the banks holding onto homes so not to flood the market with bank-owned properties. These phantom properties are the unknown and make the market more unstable. Thanks for the post. It was definitely informative although I will admit depressing.

Preston September 7, 2010 at 2:13 pm

Suppose one could accurately & precisely measure national ‘unemployment’ on a daily basis — what exactly would you do with that information ??

Such statistics are the realm of ivory tower central planners… and merely noise to the rest of the world.

Bruce Koerber September 7, 2010 at 5:03 pm

Deciphering Unemployment Numbers!

Step One: Hold your nose.
Step Two: Identify the cause of the the effect (unemployment).
Step Three: Call the ego-driven interpreters liars and economic numbskulls.
Step Four: Help others to recognize that politicians are ego-driven interventionists.
Step Five: Search for the means to build a classical liberalism society around yourself.
Step Six: Continue to educate yourself and others about the inappropriateness of empirical economics.

Ohhh Henry September 7, 2010 at 11:20 pm

It would be nice to see that chart, Total Private Industry Employees, graphed as a percentage of population.

Eyeballing the graph and comparing to data from the web, it looks like the percentage of the population in private industry from from start of 2006 to start of 2010 was about 38%, 38%, 38%, 36%,34.5%.

Another good chart would be percent of USA population who are government employees or recipients of welfare, unemployment insurance, food stamps, social security, medicare and medicaid (separately and combined). Also graphs showing per-capita government expenditures, income tax revenues, and the total number of federal income tax returns filed as a percent of population. That would probably say a lot.

billwald September 8, 2010 at 10:29 am

I don’t understand the classification of people who quit looking for work. They didn’t need a job in the first place? They now sell dope and shop lift?

Christopher September 8, 2010 at 11:33 am

2-parent households were both were working and now only 1 is working and the other has chosen to remain at home. This is a perfect example.

Fephisto September 8, 2010 at 1:14 pm

Or people who go back to live with their parents.

(actually, I know one case where it’s the opposite: the parents lost their jobs and came to live with their son!)

J. Murray September 8, 2010 at 1:24 pm

Early retirement is another option people have been taking, particularly baby boomers who would have otherwise waited until 67 to retire are taking early retirement Social Security benefits at 62 because they can’t find work.

Gerry Flaychy September 8, 2010 at 7:56 pm

Part of the data comes from interviews with some peoples: http://en.wikipedia.org/wiki/Current_Population_Survey#Methodology
Not very accurate !

pc350 October 3, 2010 at 7:15 pm

I see more and more people opting for early retirement.

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Richard in Paris October 26, 2010 at 9:53 am

I currently live in France and we are under going large changes in the countries pensions policies. The current sense of poor job creation is adding to the general doom and gloom. I agree with one of the other postings I see more early retirement even in France.

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