Last Friday, the unemployment figures for September were released. The evening before, economists predicted that just over 100,000 jobs would be added from the previous month, which would increase the percentage of unemployed citizens from 8.1% to 8.2%. Following a universally-watched beat down at the debate that Wednesday night, a rise in the unemployment rate would be more bad news for President Obama and his administration’s hope of reelection. Friday morning came, and along with it the news that 114,000 jobs had been created, just as the economists had predicted (most of which were public-sector government jobs). What wasn’t predicted was the drop in the unemployment rate – down to 7.8%. A key detail to remember is that the unemployment rate hadn’t dropped that much at one time in 29 years. Seems kind of fishy, right? Let’s go through the process of how these numbers are actually calculated and shed some light on what goes on behind the curtain.
First, here is how the Bureau of Labor Statistics (BLS) calculates the unemployment rate each month. A survey of 60,000 homes is questioned regarding their current status of employment. The BLS website (http://www.bls.gov/cps/cps_htgm.htm) says that this translates into approximately 110,000 people, sixteen years old and above. So, in other words, the assumption is that these households interviewed will accurately depict the tens of millions of work-eligible citizens and their current employment status.
When contacted, they are asked whether they currently hold a job, whether it is full- or part-time and, if it is a part-time job, are they seeking full-time employment rather than remaining part-time. Currently, there are 8,600,000 workers who are forced to take on part-time jobs while continuing to search for full-time employment, according to the BLS. This number has nearly doubled since President Obama took office, and rose 7.5% in September alone. These individuals are referred to as “underemployed” and are counted in the employment statistics.
Here is where the details start to become essential in understanding the calculation of the unemployment numbers. The Bureau of Labor Statistic’s website states, in a section entitled “What are the basic concepts of employment and unemployment?”, exactly how they categorize each group:
• People with jobs are employed.
• People who are jobless, looking for jobs, and available for work are unemployed.
• People who are neither employed nor unemployed are not in the labor force.
They then define what constitutes an employed worker:
• …people are considered employed if they did any work at all for pay or profit during the survey week. This includes all part-time and temporary work, as well as regular full-time, year-round employment.
Following the definition, they include two personal scenarios, which they also consider as employed workers in their calculations:
• George Lewis is 16 years old, and he has no job from which he receives any pay or profit. However, George does help with the regular chores around his father’s farm and spends about 20 hours each week doing so.
• Lisa Fox spends most of her time taking care of her home and children, but she helps in her husband’s computer software store all day Friday and Saturday.
Boggle your mind? Obviously, these sorts of details aren’t widely known, for obvious reasons. Just by these facts alone, directly from the Bureau of Labor Statistic’s website, you are probably already scratching your head and wondering why so many people trust these numbers without questioning the actual process. But wait, there’s more.
When calculating the employment and unemployment data, the BLS uses what they refer to as the “labor force”, meaning all those who are working or currently looking for work. These numbers also include those currently receiving unemployment benefits. Here’s where the problem lies. The labor force does not include individuals labeled as “discouraged workers”, which are defined as:
A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment in the last four weeks. Discouraged workers have usually given up on searching for a job because they found no suitable employment options and/or were met with lack of success when applying.
Again, these out-of-work citizens are not included in the unemployment numbers. In August, the unemployment rate dropped from 8.3% in July to 8.1%, and only 142,000 new jobs were reportedly created. How could the number drop this drastically with such a small amount of jobs created? About 500,000 newly discouraged workers were removed from the calculations. In order to get from 8.1% unemployment in August to 7.8% in September, imagine how many discouraged workers were again removed from the BLS’ calculations.
Combine the discouraged workers with the underemployed workers and you come up with a much different result. When the definition of “unemployed” is changed to include discouraged workers, underemployed workers, along with those still searching for work, the unemployment rate stands at 14.7%. From August to September, this rate remained unchanged at 14.7%. This measurement of the unemployment rate is considered by many to be a more accurate depiction of the economic situation in our country. However, when the government is in charge of measuring their own success, which number looks better: 7.8% or 14.7%?
Not to mention, they would never expect most people to put forth the effort to understand the real numbers and measurements used.
But now, you’re not “most people”.