Unemployment: Devil Is in the Details

Wednesday, 10 Apr 2013 07:52 AM

By Patrick Watson

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Every month, like clockwork, the U.S. government updates us on the unemployment rate. In March it was 7.6 percent. We see the headlines, but we rarely stop to ask an important question: 7.6 percent of what? The answer may surprise you.

The numbers in media reports come from the Bureau of Labor Statistics (BLS). Their monthly “Employment Situation Report” typically runs about 40 pages. Some of it is boring, but it’s all important. Every job gained or lost is someone’s life.

An unemployment rate of 7.6 percent doesn’t mean 7.6 percent of all Americans are unemployed. The denominator is actually the “civilian labor force,” which includes only people who can work and want to work.

If you’re not able to work, or you don’t want to work, you are neither employed nor unemployed. You exist in sort of third dimension, “Outside the Labor Force.” You share this space with about 90 million other people. The largest group is retirees, followed by full-time students, stay-at-home parents and disabled adults.

The 90 million also includes people who could work, and might even want to work, but are not actively looking. Under BLS methodology, being without a job doesn’t necessarily make you “unemployed.” You must also have made specific efforts to find a job in the last month.

These so-called “discouraged workers” don’t go back in the “unemployed” category until they start job hunting again. This is why the unemployment rate can actually worsen as the economy improves. People may be confident enough to resume the job search — which puts them back in the work force — but still not find jobs right away. These shifts can sharply change the unemployment rate even if no one is hired or fired.

Does the government fudge the jobless numbers? Many people think so. I guess it’s possible, but unemployment is a complicated problem. You really can’t summarize the job status of 300 million people in one or two sentences. We can have clarity or we can have accuracy, but we can’t have both.

What we do know is enough. Too many people aren’t working, or are working hard and getting nowhere. That’s the real problem, no matter what the numbers say.

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