What's the Real Unemployment Number?

[Beacool]

By CHARLES HUGH SMITH
02/09/11

Last week's surprisingly sharp decline in the unemployment rate from 9.4% to 9% and equally surprising anemic job growth -- 36,000 new jobs -- left a lot of investors scratching their heads. How could the unemployment rate plummet so significantly while a such a trivial number of new jobs were created?

If we simply extrapolate those numbers, we get some nonsensical results. If adding 36,000 jobs to the 139 million jobs in the U.S. economy lowers the unemployment rate by 0.4 percentage points, then adding just 720,000 jobs should lower the unemployment rate by 8 points -- from 9% to only 1%.

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The Real Unemployment Level Is. . .

If we take the number of unemployed as roughly 15 million (the BLS number from November 2010) and the true labor force as 160 million (out of an estimated total population of 310 million), then the true unemployment rate would be about 9.4% -- right where it was before the recent adjustment to 9%.

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Job Growth Is Still Weak



Bottom line: The numbers that matter in the U.S. economy are the total number of jobs and the number of jobs created, not the constantly massaged unemployment rate and not-in-labor-force numbers.

http://www.dailyfinance.com/story/careers/real-unemployment-number/19833935/

Unfortunately, it appears that a high unemployment rate will be the new "normal" for some time to come.

[Name removed]

1. Deleted message

Sub-thread removed by moderator. Click here to review the message board rules.

[cutlassmama]

2. I read somewhere (can't remember) that the true rate was 22% due

to 99'ers dropping off rolls, people taking early retirement, the underemployed and part timers.

[Beacool]

3. 22%???

Wow, that high? I had heard 17% to 18%. Unlike at the end of other recessions, it looks like this one won't see a significant reduction in unemployment for a very long time. Which begs the question, what are people going to live on? Many have already exhausted their unemployment benefits. Troubling times.

[Sherman A1]

14. I had heard that number as well, based upon

inflows to the SS system.

[Beacool]

16. Well, I just don't know what to think anymore.

This morning they released the new claims and they're lower than the lowest number predicted. That's great news, but less people filing new claims does not necessarily mean that many more jobs were created for the week.

[pinqy]

17. You read it from someone quoting shadowstats

But it doesn't add up. First, Unemployment Insurance has nothing to do with the unemployment rate...doesn't matter if you quit, got laid off, never had a job, etc.

Definitions for the UE rate calculations:
Employed: worked at least 1 hour for pay or 15 hours unpaid in family business/farm in the previous week (or were on leave, strike, other temp abscence).

Unemployed: Did not work, but actively looked for work in previous 4 weeks.

Labor Force: Employed + Unemployed

UE rate: Unemployed as a percent of the labor force.

Not in the Labor Force: Everyone else 16 years or older not in prison, mental institute, or the military who is not employed or unemployed.

There are alternate rates that include different groups.
U-1 is the % of the Labor force unemployed 15 weeks or more: 5.5%
U-2 is % of labor force laid off: 5.6%
U-3 is the official rate, % of the labor force unemployed: 9.0%
U-4 is unemployed + discouraged workers as a % of the labor force + discouraged workers: 9.6%
U-5 is unemployed + all marginally attached as a % of the labor force + all marginally attached: 10.7%
U-6 is unemployed + all marginally attached + people working part time for economic reasons as a % of the labor force + all marginally attached: 16.1%

Marginally attached means did not work in the previous week or actively look for work in the previous 4 weeks, but wants a job, is available to work and has looked sometime in the previous 12 months.

Discouraged workers are marginally attached and did not look because they don't think they'll find a job.

Part-time for economic reasons means wants a full time job but works part time either becuase business is slow/hours cut or can't find a full time job.

The 22% is allegedly adding in to the U-6 those who would be discouraged but haven't looked in the last year. I say allegedly because even adding in everyone not in the labor force who says they want a job would only bring the rate up to 18.7% (and most of those who want a job aren't available and/or haven't looked for work in over a year.

[golfguru]

27. The 9.0% or the 9.4% does NOT include people who

1. Have given up looking for jobs
2. Are working part time jobs for lack of finding full time jobs with benefits
3. Are working in jobs below their skill levels.

And NO ONE KNOWS exactly how many people are in above categories.

[pinqy]

30. Why should they be included?

1. If you're not looking, you're not in the labor market and cannot be hired, so that makes you a poor indicator of what the labor market is actually doing. It's too subjective.

As for 2 and 3, people with jobs, by any definition, are not unemployed. And "below skill levels?" Seriously? How the Hell are you supposed to objectively evaluate that?

[golfguru]

31. When you give up looking for a job it is NOT because

you just won the lottery, it is because you are discouraged after
wearing out shoe leather knocking on 100 different doors.

Item 2 does have a lot of student and house wife types. But there are also lot of
people who will take 1 or 2 part time jobs which typically do not pay benefits such as
401-k, paid vacations, health insurance etc.

Item 3) is easy to differentiate when you see a person with a college degree working
as a retail clerk or restaurant cashier. Many aerospace engineers dropped in that
category some time ago when aerospace industry nose dived.

[pinqy]

32. You didn't answer my question

I asked why they should be included in the Unemployment rate.

So the first thing you have to ask is what the purpose of the UE rate is. It's to measure the month to month differences in how much of the available labor force is not actually working. And because it's a survey it's important to be as objective as possible. Someone no longer looking for work may have stopped looking for any number of reason not related to the actual job market: injury, illness, pregnancy, lack of childcare/transportation, deciding to go back to school or enroll in training, retire altogether, spouse has better job more money decides not necessary to work, etc.

Now, even of those who aren't looking because they say they don't think they'll find a job, the problem then becomes that this is a very subjective opinion. And that makes the error greater. It's February now, and it happens to be the reference week for the survey. Now, people saying they've looked for work in the last four weeks and don't have a job gives us a good idea what the job market is like right now. People who haven't looked for work since last March don't. Their belief on what their success would be may or may not be accurate. Their sincerity on wanting a job might not be accurate. In short, adding discouraged makes the count less accurate and adds no useful information.

Item 2: They're still EMPLOYED. Why do you want to count them as if they don't have a job at all? Now, what is measured, and used in the U-6 measure of underutilization are people who want and are available for full time work who are working part time because of slow business/cut hours or they can't find a full time job.

Item 3: Do you know how many people with a Bachelors in Fine Arts wait tables in this country? And do you consider that the same kind of underemployment as an engineer waiting tables? Plus there are many people working "lesser" jobs than their degree because they're incompetent, or because they enjoy their job. It's just too difficult to get any kind of meaningful measurement of skills-based underemployment and Economists and Statisticians have been working on the problem for decades.

But in any case, They're still EMPLOYED. Why do you want to count them as if they don't have a job at all?

[golfguru]

34. A better way to measure job situation is

to count actual number of people paying social security tax.
Any one who has a job pays social security tax.

The quarterly data of above number clearly will show if jobs are expanding
and what rate.

Next, add all social security tax being collected. This quarterly number will
show if earnings are increasing.

There are a few people (less than 5%) who earn more than the cut off point for
social security tax. But many of them just barely above the limit, as I was for
most of my working years. So the data is not affected much.

Using social security tax as a tool to compute employment is much more accurate
and easily available since all employers are required to turn in tax collected
on a quarterly basis, AFAIK. Lot better than taking surveys.

The census shows population numbers, so comparing working people to number of people
at or above employable age gives you unemployment, count of jobs, earnings & trends.

[pinqy]

35. Ok, here's why that's not better

Using FICA contributions gives you no details. No occupations, no industries, no count of hours, etc. And the physical act of counting 160 million people or so every month is hard and you get a lot of counting errors. Seriously, dealing with that many individual records is really not more accurate than a well-conducted survey, and the survey gives more information. And now you're talking quarterly data...What would be the time lag from the first day of the quarter to publication? Right now, the data is monthly.

And weren't you the one talking about Underemployment, too? You couldn't get any of that info from the admin FICA records.

Currently the official Current Employment Survey is a survey of non-farm business that contribute to Unemployment Insurance. Once a year every business is counted. That takes about 9 months or so to do. So counting everyone individually is difficult.

The census is conducted every ten years. So I'm not sure why you think that would be useful. The Current Population Survey, done by Census, is what is used now for Unemployment. Now, you're suggesting simply looking at the % of the adult population without jobs and calling that "unemployed." That's done. The percent of the population that is employed is 58.4%, meaning 41.6% of the population is not working. But that's an awful lot of people who don't want jobs or can't work. We're talking around 80 million people who aren't working because they're retired, full time students, stay at home spoused, or disabled. Why would you count them as Unemployed.

I keep asking why you want to include all these different groups as unemployed and you don't answer.

[golfguru]

36. Number of people paying FICA / adult population of working age

is the true employment number AFA I am concerned.
I am not worried about breakdown by industry, I am most worried
about UNEMPLOYMENT for people between 18 & 65 who have no jobs.
Who cares what field you are working in so long as you can finds a job.

It is true that that not all people in that age group WANT to work.
However it is an excellent indicator to compare different periods in
the history of this country. When jobs are plentiful, more people tend
to work. Such as during Bill Clinton era. The current period is the worst
I have seen in 50 years. Most teenagers I know can not find summer and
part time jobs. Many college graduates I know can not find jobs. I live
in a county which was at one time the fastest growing in WA state and now
the unemployment rate is near 15%.

[Vattel]

4. Obama can't admit it, but he knows that he has no real solution

to the unemployment problem. He can inject a meagre amount of stimulus to the economy, and he can wait and hope that things improve.

[Cali_Democrat]

5. There is a real solution to the unemplyment problem

Corporations are sitting on $2 trillion in cash. Tax the shit out of them and create job training programs and construction infrastructure projects.

If corporations won't use that money to invest in America, then the government should put that money to good use and end the unemployment crisis.

However, Obama does not want to offend the wealthy and corporations so he will not pursue it. Besides, his new Chief of Staff worked for JP Morgan Chase.

edit: typo

[Vattel]

6. I totally agree in principle,

but Obama doesn't have the politcal capital to achieve that.

[vaberella]

7. He never did. n/t

[Arkana]

9. Yeah, he should totally put every corporate CEO in a half-nelson

and threaten to break their arms if they don't start hiring :eyes:

[Vattel]

11. my point exactly. there's not much he can do

[vaberella]

8. What in the hell?! "Obama doesn't want to offende the wealthy and corporations.."

Do you see what you're asking? You know the political process, correct?! He would need legislation like that pushed by both parties in order to achieve it. Not of his own accord. I'm tired of people stating he has public opinion so he can get something done. It doesn't work like that. Congress can claim well my public says no, and nothing gets done.

So he would need to have Congress supportive of this. These sort of measures are like the expiration of tax cuts for the rich. Congress rebelled against it. 31 bloody Dems in the House wrote a letter to Obama to say to extend cuts to the rich and the middle class. And you're expecting Obama to do what?! Seriously?! We have Dems in Congress (Senate and House) who are in the pockets of the Corporations----we have Republicans who hate him and/or in the pockets of the corporations...and who sincerely believe in trickle down economics.

How are you saying Obama doesn't want to "offend the wealthy and corporations so he will not pursue it." Let's say that you did believe he had the will (since I definitely believe he does)...does he have the way based on the cards that are on the table?! And if he doesn't have the way...it doesn't matter if he had the will or not.

Obama doesn't work alone. He was pushing for the expiration of tax cuts. It went to vote twice in Congress and twice it failed. Obviously we have a shit congress and this new one is even more extreme and frightful.

[Cali_Democrat]

22. This could have been done last year

The problem is that Obama didn't fight hard enough and he rarely does. Arm twisting from Obama would have kept all the Dems inline on taxes, but Obama seems to avoid confrontation. The sad thing is that confrontation is necessary is politics. This is not a game for the weak.

We pissed away our overwhelming majorities in Congress and we used our majorities to pass tax cuts for the wealthy.

Pathetic.

[jtuck004]

10. That's not nearly enough.

And even if you cold accomplish this, with a trade imbalance to China the dollars end up there.

Then what do you do?

This heart has been cut out of manufacturing, and the financial sector has replaced it without a way for the average working person to create wealth and disposable income, and it has happened over the past 30+ years. The price tag to restore full employment in this economy, an unemployment rate around 5%, and still leave everyone at roughly the same standard of living they were in, say, about 1970, would be something around $20 trillion, perhaps more.

It would take revamping the entire manufacturing system, guaranteeing 20 million good jobs with enough disposable income to buy products for at least 5 years, lots and lots of R&D to create the transportation, energy and other products that we need for the next century. It would also take opening up and providing education for millions of people, not only their skills, but their knowledge of how to live in a globalized world, their business skills.

There are a couple of other things, like health care, that would have to be addressed, but you get the idea.

One might say that $2 trillion is at least a start, but it isn't. It would do little more than the $800 billion stimulus, which has left us with higher unemployment, more people without health care, more people homeless and losing their homes, and in three to four years we would be back to conditions today, though without some major corporations, for no good reason.

[Yavin4]

19. You Will Need Congressional Approval To Do That

And that aint happening.

[Cali_Democrat]

20. I know

The Dems used their majority in the House to pass tax cuts for the wealthy.

[Yavin4]

21. Congressional Dems Are Bought and Paid Fo

just like the Republicans. They all work for the same owner.

[Name removed]

23. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Yavin4]

24. In the End, Obama Simply Does Not Matter

Elect Kucinich. Elect Hillary, Nader, Gore, Michael Moore, or Rachel Maddow. None of them would make a dime's bit of difference. All major domestic legislation has to get congressional approval, and they are own and operated by corporate money.

[Cali_Democrat]

25. So then Congress should get credit for all legislation like DADT and Health Care Reform?

Right?

If Obama is powerless as you claim, then all the credit for the good things should go to Congress.

[Yavin4]

26. You're Making The Same Big Mistake Most Progressives Make

Everything to you is either something Obama is or is not doing. The whole fucking government is corrupt through and through, and there's nothing that one person can do about it. Obama eventually goes away, but the corruption will continue.

[Hello_Kitty]

29. Obama was given total credit for DADT repeal by many on this site

It was hailed as a significant accomplishment for him, even though it came through Congress.

[golfguru]

28. If government confiscates that $2 Trillion

they will spend the money for hiring more government workers,
more construction projects, and more aid to the poor.

None of that will create PERMANENT jobs which CREATE wealth. Government jobs do not
create any wealth and can not exist without taxes from the private sector.

On the other when a business EXPANDS or a NEW business starts, wealth creating
jobs last many years.

[rusty fender]

37. Gov't. jobs don't create any wealth?

Los Alamos County in New Mexico has the greatest # of millionaires in any county in the U.S. Where do they work? Los Alamos National Labs. Who pays their salaries? We do.

[Beacool]

12. I think that no US president would dare upset the apple cart.

Vast amounts of money is what gets them into office in the first place. They all have to dance to the tune of their corporate masters. The only way that things would change substantially is if we had real campaign finance reform.

:-(

[area51]

13. What's the real unemployment number?

Try 30½%; this is a Great Depression and we need a new WPA in order to try to get out of it.

[pinqy]

15. Look what they're including.

The YSU study also includes the underemployed - people who aren't able to get full-time jobs due to the economy; people on sick leave or early retirement; recipients of government aid, such as a low-wage worker getting Earned Income Tax Credits, or prison and jail populations.

So that's a lot of people who are employed being counted as unemployed, and people who can't get jobs (the prison population) as unemployed, and people not looking for work (the Marginally attached, and retirees).

Since that's nothing like how the calculations were made for the Depression (NO employed people or marginally attached) the comparison is ridiculous.

Hell, we can make the number over 40% without including prisoners or mental patients by claiming that "unemployed" simply means not having a job.

[AtomicKitten]

18. That explains a lot.

[quiller4]

33. YSU study includes people like my husband and me. We

retired early by plan because we had private pension plans, savings and a paid off house. I've turned down job offers every year since I retired yet I am somehow "unemployed". The YSU also counts my foster daughter who lives on SSI. She is permanently disabled and is not and never will be employable. It considers my niece "underemployed" because she only works parttime but she chooses her irregular wokr schedule to make time for her art.