It’s 2012. The Great Recession is over. But it doesn’t really feel like it’s over, does it? You keep getting good news about the unemployment rate (until last Friday, anyway), but somehow the good news doesn’t ring true. Why not? Because the good news is a crock of hooey, that’s why.
Let’s forget about unemployment rates for a minute and look at a much more interesting and revealing statistic, the employment to population ratio. This is the percentage of people, age 16+, not in the military and not in the pokey, who have jobs. Take a look at these numbers direct from the Bureau of Labor Statistics, series LNS1230000, Employment-population ratio:
Notice anything? That’s right, the employment to population ratio has been flat since late 2009. No change. None. Niente. Nada. Zip.
So why is that, when all these politicians and journalists are feeding you rosy stats on job creation? Because the population is increasing, that’s why, as this series shows, and the rate of job creation has been just sufficient to keep the employment-population ratio stuck at about 58.5% -- but not sufficient to take us back to pre-recession levels of 63%. To do that, you would need to create over eleven million jobs! (Explanation: current 16+ noninstitutional population is 242.6 million To get us back to the December, 2006 employment-population level of 63.4% from the May, 2012 level of 58.6%, it would take (.634 - .586) * 242.6 = 11.6 million jobs). Good luck doing that at a rate of 69,000 per month (May's feeble increase), especially with the population increasing at a rate of 170,000 per month. Yes, nous sommes foutu. You couldn’t have said it better yourself.
And that’s it in a nutshell.
So, why all this mooing and lowing about “the unemployment rate”? I have no idea. It is a subtle and not very telling statistic, and I believe that if people understood it better, they wouldn’t take it very seriously. And here is why.
The Bureau of Labor statistics regularly reports six different unemployment rates, but the one reported in the press as “the” unemployment rate is U3.
The Bureau of Labor Statistics (BLS) derives its labor force and employment statistics from the monthly Current Population Survey (CPS) survey conducted by the Bureau of Census, which surveys a sample of approximately 60,000 households. Based on this survey:
- Persons serving in the military or confined in institutions are excluded, and persons under 16 years of age are excluded. What remains after these exclusions is the population eligible for inclusion in the civilian labor force.
- The civilian labor force is then defined to include only those persons who are either (1) employed (definition here is a little sticky as it includes persons who work part time, are temporarily absent from work for various reasons, and a few other oddities) or (2) unemployed, which means that they have not done work for pay or profit in the survey period; have actively looked for work in the last four weeks (meaning that they have applied for work or made inquiries – just looking at web sites and help wanted adds alone does not count); and are available for work. Note that despite what many people think, “unemployed” status does not require that a person be collecting unemployment insurance, have been laid off, or for that matter have worked a single day in his life.
- The ratio of unemployed persons to the civilian labor force (which includes both employed and unemployed persons, as defined above), expressed as a percentage, is the U3 unemployment rate.
- The accompanying flowchart should answer any lingering questions you may have about how these statistics are arrived at.
So it should be clear at this point that the U3 unemployment rate can go up, down, or remain the same regardless of how many people are actually employed, and tells you absolutely nothing about total employment, or what proportion of the population is employed:
- If many people give up looking for work, they will no longer be counted as unemployed, and the unemployment rate will go down, even though the number of employed persons has not changed at all, or has even declined. Yes, you can have fewer people working and a declining U3 unemployment rate at the same time.
Thus, a change in the U3 unemployment rate is utterly meaningless unless you understand WHY the change has occurred, and not all that interesting even then. Any politician or journalist who attaches any significance whatsoever to a change in the unemployment rate without explaining why it has occurred is either mendacious or stupid. Or possibly both. But fear not, there is an easy way to find out why U3 has changed, for what little such information is worth. Just go to http://www.bls.gov/ and read the Commissioners Statement. Cut out the middleman!