Every month the unemployment figures come out and every month they’re a strange brew of fact and fiction. Not just a little off the mark, but completely outside the bounds of reality, something Jules Verne or Stephen King might have conjured up.
“There’s no other way to say this,” says Jim Clifton, chairman and CEO at Gallup. “The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.”
What Clifton says is both true and old news. For instance, back in 2004 I wrote that “employment nationwide increased by 308,000 jobs in March, but shouldn’t we count the 1.4 million ‘persons not in the labor force’ not listed in the unemployment figures?”
The fact that the published, promoted and politicized unemployment figures are always convoluted and unsound is important for any number of reasons and one of the most significant is this: The Federal Reserve says it looks forward to raising interest rates when the economy improves. We’re not there yet said the Fed in January, but “labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish.”
What this means is that the Fed wants to move the economy on the basis of numbers which are entirely fictitious. If the numbers are wrong then the chances of a wrong policy decision are immense, as is damage to the economy.
Steeper interest rates will very much impact the housing sector and not in a good way. For instance, last week the Mortgage News Daily reported that “mortgage rates shot higher at their fastest pace in nearly a year today following this morning’s employment data.”
With higher rates affordability declines and with less affordability both real estate appreciation and unit sales are likely to slow if not fall. Suddenly the need for accurate job figures becomes very important if we are to head off another financial downturn.
How We Got This Way
Whoever has been in the White House — regardless of party affiliation or political philosophy — wants the numbers to show low rates of unemployment for obvious political reasons. Wall Street wants to prop up public confidence and if that requires convoluted job numbers that’s perfectly fine. Maybe the government can borrow a few accountants from Enron or put Bernie Madoff to work “re-stating” the latest figures to assure they reflect the expected and required result.
At first it might seem that figuring the unemployment rate would be fairly simple: Take the population of people who can hold jobs and compare that figure with the number of eligible people who do not hold jobs. Such a formula sounds enticing but doesn’t work.
For instance, is a full-time college student in the job force? How about a housewife? Do we say that the potential universe of employees includes all those between the ages of 18 and 65? If yes, how do we account for workers in their 70s and 80s? What about someone who works one hour a week? Are they “employed” for statistical purposes?
Clifton says “Gallup defines a good job as 30+ hours per week for an organization that provides a regular paycheck.” With this definition a “regular paycheck” might mean $7.25 per hour — the federal minimum wage — for 30 hours a week and no benefits. That’s $15,080 per year before taxes and certainly not a living wage for Mr. Clifton or anyone else ($7.25 x 2,080 hours).
Incredibly, the federal minimum wage for restaurant servers is currently $2.13 per hour.
At the center of the debate are the monthly unemployment surveys conjured up by the Bureau of Labor Statistics. The figures are absolutely accurate given what they define, the problem is what they define is saddled with strange definitions as well as odd and artificial distinctions.
Look at the BLS report for January 2015 and we find:
We’re looking at the “nonfarm payroll” because, apparently, people on farms don’t work.
“There were 8,979,000 people who were unemployed, 5.7 percent of the 157,180,000 people in the civilian labor force. In this case we’re not counting people in the military.”
While we might think of “full-time” employment as a 40-hour work week, the typical worker spends far less time on the job, just 34.6 hours per week according to the BLS. At $7.25 per hour, that’s $250.85 per week versus $290 for 40 hours and $217.50 for Mr. Clifton’s 30 hour standard.
The report has nothing to say about household income, an important measure of employment results. If it did mention household income the BLS might usefully include information from the Census Bureau, which says that the median household income in 2013 was 8.7 percent lower than in 1999 — 16 years ago.
Huge numbers of people would like to work more. “The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged in January at 6.8 million,” said the BLS. “These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.”
We had 2.2 million people who “were marginally attached to the labor force, individuals ‘not counted as unemployed because they had not searched for work in the four weeks preceding the survey.'” In other words, not 9.0 million unemployed but roughly 11.2 million unemployed, or about 7.126 percent of the civilian workforce.
Among those who were marginally attached to the labor force, we had 682,000 “discouraged workers,” people “not currently looking for work because they believe no jobs are available for them.”
The “labor force participation rate” (LFPR) was 62.9 percent. The LFPR compares the civilian labor force with the total “civilian non-institutional population.” In this case, while the unemployment rate during the past year fell from 6.6 percent in January 2014 to 5.7 percent in January 2015 but the participation rate also fell by .1 percent. If the participation rate stayed constant the civilian labor force would be larger.
The household survey, one way to measure unemployment, includes “unpaid family workers.” With the household survey “people are classified as employed if they did any work at all as paid employees during the reference week; worked in their own business, profession, or on their own farm; or worked without pay at least 15 hours in a family business or farm.” With this standard you can be unpaid and still be counted as “employed.”
“It’s hard to read the latest report on the state of the job market as anything but excellent news for the American economy and American workers,” reports The New York Times.
Actually, it’s hard to read the unemployment reports at all or to see them as especially credible. The “employed” numbers include people are unpaid, while the “unemployed” figures leave out individuals who can’t find a job.
None of this makes much sense but don’t expect the system to change anytime soon. After all, the benefit of the current system is that while it may be wrong, it’s consistently wrong, month in and month out, and who would want to fiddle with that?