Tags: unemployment | rate | jobs | labor

Former BLS Commissioner Keith Hall: Unemployment Number 'Highly Flawed'

Friday, 19 Jul 2013 07:27 AM

By Greg Richter

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The rules used to calculate the unemployment rate are from the 1930s and "highly flawed," says a former commissioner of the Bureau of Labor Statistics.

In fact, the real unemployment rate is 3 percent higher than the government's claim of 7.6 percent, says Keith Hall, who led the BLS from 2008 to 2012.

Currently, 11.2 million people are considered unemployed. "I think a more reasonable number is about 18 million people," Hall said.

Editor's Note: Know the story behind the numbers: Forecaster Joel Naroff provides timely, expert analysis of key economic data for Financial Braintrust Alliance members.Visit www.fbtalliance.com for more information and to sign up.

It is too easy to be employed under the current definition, and too hard to be unemployed, Hall said Thursday on Fox News Channel's "Your World."

"If you do any work for money at all you are considered employed," Hall said. A laid-off engineer who helps his neighbor trim a tree and gets paid is considered "employed" even though his income is nowhere near his pay as a full-time engineer.

To be considered "unemployed," a person has to have no work at all and be actively looking for work. But job hunters eventually run out of employers to send their resume to and run through all their friends who might have job leads. They then go into a "passive mode," checking want ads and seeing if anything pops up.

"Well, that's not considered active enough, and they become not 'unemployed,' but just 'jobless,'" Hall said.

People become "inactive" even though they really want to work, they get dropped out of the labor force and no longer are considered "participating." Since the recession began, the "labor participation rate" has dropped tremendously," Hall said.

The employment ratio, which Hall prefers to use, shows what share of the population has a job. That number went from 63 percent before recession started in December 2007 to 59.4 percent when it officially ended in June 2009. Since then, the rate has dropped even further, to 58.7 percent.

"So a smaller percentage of the population is now working, yet the unemployment rate went from 10 percent down to 7.6 percent," Hall said. "That's a problem."

Unemployment rates rose in 28 U.S. states last month, partly because more Americans started looking for work and not all of them found jobs, the Associated Press reported Thursday. The Labor Department says unemployment rates fell in 11 states and were unchanged in another 11.

Meanwhile, Federal Reserve Chairman Ben Bernanke this week played down the unemployment rate's weight in the central bank's calculation of when to start raising short-term borrowing costs, a new example of the challenge the central bank faces explaining its easy-money policies to an often perplexed public, The Wall Street Journal reported.

The Fed has been saying short-term interest rates won't go up at least until the jobless rate drops below 6.5 percent, and as long as inflation stays near 2 percent.

"There are a number of problems with the labor market," the Journal reported that Bernanke said at the hearing of the House Financial Services Committee.

"Unemployment is one problem, but long-term unemployment and underemployment — and by 'underemployment,' I mean people either who are working fewer hours than they would like or possibly working at jobs well below their skill level — is also indicative of a weak labor market."

Reaching 6.5 percent unemployment "would not automatically result in an increase in the federal funds rate target," Bernanke said, according to the Journal. Most economists don't expect the jobless rate to reach 6.5 percent until 2015, so the Fed likely won't face this decision for a while.

Editor's Note: Know the story behind the numbers: Forecaster Joel Naroff provides timely, expert analysis of key economic data for Financial Braintrust Alliance members.Visit www.fbtalliance.com for more information and to sign up.

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