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Topic: On the methodology of the official unemployment rate.

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All Forums : [GENERAL] : General Discussion : Current Events > On the methodology of the official unemployment rate.
30 APR 2012 at 11:23pm

cicerno

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I worked long at this response to the 12% unemployment article only to find the thread closed. I am going to post my response here since I spent so much time and effort on it. It is carefully non-inflammatory and I believe entirely educational to those who had questions about the economics behind the article and addresses some technical questions people had concerning the methodology. I hope it is accepted in the spirit it is given.

 

http://blogs.wsj.com/marketbeat/2012/04/12/the-true-unemployment-rate-try-12/?mod=e2tw

 

The linked article, entitled "The ‘True’ Unemployment Rate? Try 12%" presents an argument that the 'true unemployment rate' is 12% rather than 8.4%.

 

It is an argument made without the necessary and sufficient context to make it a sensical statement. Without the necesary context, it is a meaningless statement that has been passed around the blogosphere as 'proof' of two things:

 

1) The current official unemployment rate temporarily underestimates the 'true' unemployment rate;

2) The Obama administration is deliberately manipulating the numbers to 'conceal' the true unemployment problem.

 

Both of these are reasonable interpretations of the article.

 

To dispose of the second one first; it is categorically false. In the linked video it is mentioned briefly by the author but not mentioned in the text that the BLS numbers are not in dispute. The numbers used are assembled by the BLS using the same exact methodology as they have used for 64 years by, for the most part, the same exact people who have been doing it for the past ten to twenty years. All the sources and calculations are publicly available. The author himself uses those numbers to make his argument. The official numbers published by the BLS are 'untainted' by politics and each year in the series back to 1948 is directly comparable to every other year.

 

 

The other problem is that the author makes a statement that lacks meaning. He might as well say the 'true unemployment rate' is blue.

The unemployment rate answers the question how many people are looking for work but can't find it. Is it accurate? Only in a broad general way. It is used so that businesses and officials can make accurate year to year comparisons. It is a blunt tool that attempts to be as accurate as possible by erring consistently.

Does it underestimate unemployment? Yes. But it does so in a consistent, predictable way. It is not meant to give an accurate number, rather an accurate comparison to previous years. That is the important information that the unemployment number provides to businesses and government and its main function.

One of the most important methods it uses to be consistent is to filter out changes in demographics from year to year and to estimate the number of people looking for work as opposed to not participating in the labor force.

The 'participation rate' mentioned in the article is an official BLS statistic that calculates the number of people employed or looking for work divided by the population 16 to 65.

The reason that the participation rate is not used as the official benchmark is that it does not answer the question of how many people are looking for work and cannot find it. There are many reasons why the participation rate changes over time, some of which have to do with lack of employment opportunity, and most of which have to do with other factors having nothing to do with the economy.

The unemployment rate is not comparable from year to year unless these non-economic factors are filtered out. If it is not comparable from year to year than it is a useless statistic.

 

The author arbitrarily picks the January 2007 participation rate as the 'true' participation rate that should apply in 2012. He does this because it is close to the low-point of the official unemployment rate in recent history and makes the current unemployment rate, what he calls the 'true unemployment rate' as high as possible. It is a rhetorical device rather than anything to do with economics.

 

But let's accept his assertion that the 2007 participation rate of 66.4% is the 'correct' participation rate. Using this he calculates that the 'true' unemployment rate should be 11.9%. He says 11.8% but he is careless with his rounding. The numbers are here:

 

January 2007:

 

Total population:            230.6

Civilian Labor force:        153.1

participation rate:           66.4%

official # of unemployed:      7.2

official # of employed:       146.0

official unemployment rate:    4.6%

 

March 2012:

 

Total population:             242.6

Civilian Labor force:         154.7

participation rate:            63.8%

official # of unemployed:      12.7

official # of employed:       142.0

official unemployment rate:     8.2%

 

IF:

 

2012 population * 2007 participation rate = 242.6 million * 66.4% = 161.1 million

 

(2012 labor force at 2007 participation rate - # of 2012 officially employed) / 2012 labor force at 2007 participation rate

 

= (161.1 million - 142.0 million) = 19.1 million 'real unemployed'

 

19.1 million 'real unemployed' / 161.1 million

 

= 11.9% 'true rate of unemployment

 

Unfortunately, his 'true participation rate' makes comparison with other years impossible. For example, is there a connection with unemployment and GDP growth? Not if one uses his 'true participation rate'.

 

Here are the numbers in 2000 when GDP grew by 6.4%.

 

2000

 

Total population:             211.3

Civilian Labor force:         142.2

participation rate:            67.3%

official # of unemployed:      5.7

official # of employed:       136.6

official unemployment rate:     4.0%

 

2000 population * 2007 participation rate = 211.3 million * 66.4% = 140.3 million

 

(2000 labor force at 2007 participation rate - # of 2000 officially employed) / 2000 labor force at 2007 participation rate

 

= (140.3 million - 136.6 million) = 3.7 million 'real unemployed'

 

3.7 million 'real unemployed' / 140.3 million

 

= 2.6% 'true rate of unemployment'

 

That's an amazingly low number, and at odds with current economic theory on frictional unemployment.

 

But let's accept it and move to one of the best years for GDP growth in the past 50 years, 1966 when GDP grew by 9.5%.

 

 

1966

 

Total population:             127.5

Civilian Labor force:         75.2

participation rate:            59.0%

official # of unemployed:      3.0

official # of employed:       72.2

official unemployment rate:    4.0

 

1966 population * 2007 participation rate = 127.5 million * 66.4% = 84.6 million

 

(1966 labor force at 2007 participation rate - # of 1966 officially employed) / 1966 labor force at 2007 participation rate

 

= (84.6 million - 72.2 million) = 12.4 million 'real unemployed'

 

12.4 million 'real unemployed' / 84.6 million

 

= 14.7% 'true rate of unemployment'

 

The author's 'true rate of participation' calculates unemployment in 1966 as 14.7%! Much higher than today's 11.8%. How is that possible? Is there truly zero relationship between economic growth and unemployment?

 

Should we be trying to push the unemployment rate up 3% so that our GDP will boom?

 

Obviously not, and that is the problem with using the 2007 participation rate as the 'true participation rate'. The numbers produced using that method are not comparable from year to year and therefore functionally useless.

 

The only possible way out for the author is to make the claim that nothing has changed demographically from 2007 to 2012. Unfortunately for him, the biggest workforce demographic trend in the past century is now occurring. The baby boomers started reaching the age of 65 in 2010.

 

The claim that the 'true unemployment rate' is 12% is a meaningless statement meant to provoke rather than to educate. Economically literate people dismiss it as a bit of foolish fear mongering. Those less literate take it as a fact to be considered in their political deliberation.

 

If a democracy is based on people making educated decisions, this sort of article thwarts the process by spreading false information. A flood of it and the average citizen cannot distinguish the truth. Hopefully this post has done something to educate people on the methods used by the BLS and why they use them. 

 

 


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1 MAY 2012 at 12:23am

danlongman

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That was very interesting.

It seems to me that one should be doubtful  or mistrustful of any "statistical" information

presented by any person with a political agenda.  There are SO many ways to count things!

That was a lot of work and interesting to read but since we do not even know how many

illegal immigrants are working in the country... except for a very broad estimate... any such numbers

are subject to manipulation and misinterpretation.  Not to pick on any group like undocumented workers

but everyone knows they are in the country and only a guess can be made as to how many.

A question that has always bothered me in thinking about these things is "How many people who are

fit to work and willing to relocate to find employment are looking for work and are unable to find any?"

cheers


"Patriotism is the belief that your country is superior to all others because you were born in it." George Bernard Shaw


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1 MAY 2012 at 5:33am

medck

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Originally Posted By cicerno (30 APR 2012 11:23pm)

The only possible way out for the author is to make the claim that nothing has changed demographically from 2007 to 2012. Unfortunately for him, the biggest workforce demographic trend in the past century is now occurring. The baby boomers started reaching the age of 65 in 2010.

 

The claim that the 'true unemployment rate' is 12% is a meaningless statement meant to provoke rather than to educate. Economically literate people dismiss it as a bit of foolish fear mongering. Those less literate take it as a fact to be considered in their political deliberation.

 

If a democracy is based on people making educated decisions, this sort of article thwarts the process by spreading false information. A flood of it and the average citizen cannot distinguish the truth. Hopefully this post has done something to educate people on the methods used by the BLS and why they use them. 

 

An excellent post and analysis.

 

I would add that 2007 is not only the peak of the previous business cycle but the year baby-boomers were reacing 62, the first year of social security eligibility.  In essence you have the maximum baby-boomer labor force participation at that point.  

 

The 2008 crisis is likely to have seriously affected these figures as older baby-boomers might well have been candidates for workforce reduction at ages, say, 60+ and had to involuntarily gone into retirement earlier than they had planned (and with reduced incomes).  That is individually demoralizing and tragic, and collectively a permanent hit to a number like the labor force participation rate, but is that really additional "unemployment"?  I wouldn't say so.  The same with a 22-year old who extends their stay in school/training.  Not the choice they would have made with a good labor market, but not really "unemployment" in the sense we think about it.

 

The stats have different meanings.  A strong argument could be made from the relatively low labor force participation rate that labor is being under-utilized in the US.  Likewise, the unemployment rate itself has meaning for government fiscal policy and provides a consistent measure of unemployed across years.  

 

Incidentally, the government also collects figures on the number of people working in the private sector and public sector so you can calculate how many jobs have been gained or lost over a period of time for general informational and comparative purposes. For example, from that data we know there has been the following changes in job levels:

 

Total:

Jan 2001-Mar 2004: -1.664 million jobs

Jan 2009-Mar 2012: -0.740 million jobs

 

Private

Jan 2001-Mar 2004: -2.417 million jobs

Jan 2009-Mar 2012: -0.161 million jobs

 

Public Sector

Jan 2001-Mar 2004: +0.753 million jobs

Jan 2009-Mar 2012: - 0.579 million jobs

 



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1 MAY 2012 at 5:36am

medck

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Originally Posted By danlongman (1 MAY 2012 12:23am)

A question that has always bothered me in thinking about these things is "How many people who are

fit to work and willing to relocate to find employment are looking for work and are unable to find any?"

cheers

 

That is the question the "official" unemployment rate addresses.  



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1 MAY 2012 at 9:32am

danlongman

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What I mean is when we approach that question things

become subjective instead of objective. Just how "fit" are

workers, how skilled are they, how "willing" are they to

relocate etc?  If you want to make thirty bucks an hour

making light bulbs in Florida and you get carpal tunnel problems

if you work too hard you are "unemployable".  (In fact I seem to

remember reading they do not make old-style light bulbs in USA anymore.)

If you want to scrub toilets for minimum wage your prospects are better.


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1 MAY 2012 at 1:06pm

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#1 Addresses well the original authors contention.  #2 is a nonsequitur and completely unrelated to the original article and unworthy of mention.


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1 MAY 2012 at 1:38pm

ActionJack

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How does the analysis address the question of those workers who've exited the workforce due to the economic downturn, and those workers who might normally retire but, again due to the economic downturn, don't want to retire but have unwillingly exited the workforce?

 

Chart of the Day: Americans Exiting and Entering the Workforce

http://www.theatlantic.com/business/archive/2011/06/chart-of-the-day-americans-exiting-and-entering-the-workforce/239909/

 


"Government is the great fiction through which everybody endeavors to live at the expense of everybody else."  Frederic Bastiat 1801-1850

 

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1 MAY 2012 at 2:34pm

ActionJack

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Although I'm curious as to why 1966 was used as a comparison, I'm more interested in what changes did you observe or take into account, concerning methodology in the BLS numbers.  One can suppose that little has changed between 2007 and 2012 in the BLS methodology, but what about the decades through to 1966?  For example, on the BLS site they have a 19 page PDF file with the following (a sample): 

Note: no highlights or color enhancements can be attributed to this post; it is entirely generated by this site.)

 

HISTORICAL COMPARABILITY (PDF)

 

Changes in concepts and methods

 

While current survey concepts and methods are very similar to those introduced at the inception of the survey in 1940, a number of changes have been made over the years to improve the accuracy and usefulness of the data. Some of the most important changes include:

 

 

 

• In 1967, more substantive changes were made as a result of the recommendations of the President’s Committee to Appraise Employment and Unemployment Statistics (the

 

Gordon Committee). The principal improvements were as follows:

 

a) A 4-week job search period and specific questions on jobseeking activity were introduced. Previously, the questionnaire was ambiguous as to the period for jobseeking, and there were no specific questions concerning job search

 

methods.

 

b) An availability test was introduced whereby a person must be currently available for work in order to be classified as unemployed. Previously, there was no such requirement.  This revision to the concept mainly affected students, who, for example, may begin to look for summer jobs in the spring although they will not be available until June or July. Such persons, until 1967, had been classified as unemployed but since have been assigned to the “not in the labor force” category.

 

c) Persons “with a job but not at work” because of strikes, bad weather, etc., who volunteered that they were looking for work were shifted from unemployed status to employed.

 

d) The lower age limit for official statistics on employment, unemployment, and other labor force concepts was raised from 14 to 16 years. Historical data for most major series have been revised to provide consistent information based on the new minimum age limit.

 

e) New questions were added to obtain additional information on persons not in the labor force, including those referred to as “discouraged workers,” defined as persons who indicate that they want a job but are not currently looking because they believe there are no jobs available or none for which they would qualify.

 

f) New “probing” questions were added to the questionnaire in order to increase the reliability of information on hours of work, duration of unemployment, and self-employment.

 

 

 

• In 1994, major changes to the Current Population Survey (CPS) were introduced, which included a complete redesign of the questionnaire and the use of computer-assisted interviewing for the entire survey. In addition, there were revisions to some of the labor force concepts and definitions, including the implementation of some changes recommended in 1979 by the National Commission on Employment and Unemployment Statistics (NCEUS, also known as the Levitan Commission). Some of the major changes to the survey were:

 

a) The introduction of a redesigned and automated questionnaire.  The CPS questionnaire was totally redesigned in order to obtain more accurate, comprehensive, and relevant information, and to take advantage of state-of-the-art computer interviewing techniques.

 

b) The addition of two, more objective, criteria to the definition of discouraged workers. Prior to 1994, to be classified as a discouraged worker, a person must have wanted a job and been reported as not currently looking because of a belief that no jobs were available or that there were none for which he or she would qualify. Beginning in 1994, persons classified as discouraged must also have looked for a job within the past year (or since their last job, if they worked during the year), and must have been available for work during the reference week (a direct question on availability was added in 1994; prior to 1994, availability had been inferred from responses to other questions). These changes were made because the NCEUS and others felt that the previous definition of discouraged workers was too subjective, relying mainly on an individual’s stated desire for a job and not on prior testing of the labor market.

 

c) Similarly, the identification of persons employed part time for economic reasons (working less than 35 hours in the reference week because of poor business conditions or because of an inability to find full-time work) was tightened by adding two new criteria for persons who usually work part time: They must want and be available for full-time work. Previously, such information was inferred. (Persons who usually work full time but worked part time for an economic reason during the reference week are assumed to meet these criteria.)

 

d) Specific questions were added about the expectation of recall for persons who indicate that they are on layoff. To be classified as “on temporary layoff,” persons must expect to be recalled to their jobs. Previously, the questionnaire did not include explicit questions about the expectation of recall.

 

e) Persons volunteering that they were waiting to start a new job within 30 days must have looked for work in the 4 weeks prior to the survey in order to be classified as unemployed.  Previously, such persons did not have to meet the job search requirement in order to be included among the unemployed.

 


"Government is the great fiction through which everybody endeavors to live at the expense of everybody else."  Frederic Bastiat 1801-1850

 

The Old Guard


Last edited by ActionJack : 1 MAY 2012 2:36pm
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1 MAY 2012 at 3:26pm

cicerno

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Originally Posted By ActionJack (1 MAY 2012 2:34pm)

Although I'm curious as to why 1966 was used as a comparison, I'm more interested in what changes did you observe or take into account, concerning methodology in the BLS numbers.  One can suppose that little has changed between 2007 and 2012 in the BLS methodology, but what about the decades through to 1966?  For example, on the BLS site they have a 19 page PDF file with the following (a sample): 

Note: no highlights or color enhancements can be attributed to this post; it is entirely generated by this site.)

 

HISTORICAL COMPARABILITY (PDF)

 

Changes in concepts and methods

 

While current survey concepts and methods are very similar to those introduced at the inception of the survey in 1940, a number of changes have been made over the years to improve the accuracy and usefulness of the data. Some of the most important changes include:

 

 

 

• In 1967, more substantive changes were made as a result of the recommendations of the President’s Committee to Appraise Employment and Unemployment Statistics (the

 

Gordon Committee). The principal improvements were as follows:

 

a) A 4-week job search period and specific questions on jobseeking activity were introduced. Previously, the questionnaire was ambiguous as to the period for jobseeking, and there were no specific questions concerning job search

 

methods.

 

b) An availability test was introduced whereby a person must be currently available for work in order to be classified as unemployed. Previously, there was no such requirement.  This revision to the concept mainly affected students, who, for example, may begin to look for summer jobs in the spring although they will not be available until June or July. Such persons, until 1967, had been classified as unemployed but since have been assigned to the “not in the labor force” category.

 

c) Persons “with a job but not at work” because of strikes, bad weather, etc., who volunteered that they were looking for work were shifted from unemployed status to employed.

 

d) The lower age limit for official statistics on employment, unemployment, and other labor force concepts was raised from 14 to 16 years. Historical data for most major series have been revised to provide consistent information based on the new minimum age limit.

 

e) New questions were added to obtain additional information on persons not in the labor force, including those referred to as “discouraged workers,” defined as persons who indicate that they want a job but are not currently looking because they believe there are no jobs available or none for which they would qualify.

 

f) New “probing” questions were added to the questionnaire in order to increase the reliability of information on hours of work, duration of unemployment, and self-employment.

 

 

 

• In 1994, major changes to the Current Population Survey (CPS) were introduced, which included a complete redesign of the questionnaire and the use of computer-assisted interviewing for the entire survey. In addition, there were revisions to some of the labor force concepts and definitions, including the implementation of some changes recommended in 1979 by the National Commission on Employment and Unemployment Statistics (NCEUS, also known as the Levitan Commission). Some of the major changes to the survey were:

 

a) The introduction of a redesigned and automated questionnaire.  The CPS questionnaire was totally redesigned in order to obtain more accurate, comprehensive, and relevant information, and to take advantage of state-of-the-art computer interviewing techniques.

 

b) The addition of two, more objective, criteria to the definition of discouraged workers. Prior to 1994, to be classified as a discouraged worker, a person must have wanted a job and been reported as not currently looking because of a belief that no jobs were available or that there were none for which he or she would qualify. Beginning in 1994, persons classified as discouraged must also have looked for a job within the past year (or since their last job, if they worked during the year), and must have been available for work during the reference week (a direct question on availability was added in 1994; prior to 1994, availability had been inferred from responses to other questions). These changes were made because the NCEUS and others felt that the previous definition of discouraged workers was too subjective, relying mainly on an individual’s stated desire for a job and not on prior testing of the labor market.

 

c) Similarly, the identification of persons employed part time for economic reasons (working less than 35 hours in the reference week because of poor business conditions or because of an inability to find full-time work) was tightened by adding two new criteria for persons who usually work part time: They must want and be available for full-time work. Previously, such information was inferred. (Persons who usually work full time but worked part time for an economic reason during the reference week are assumed to meet these criteria.)

 

d) Specific questions were added about the expectation of recall for persons who indicate that they are on layoff. To be classified as “on temporary layoff,” persons must expect to be recalled to their jobs. Previously, the questionnaire did not include explicit questions about the expectation of recall.

 

e) Persons volunteering that they were waiting to start a new job within 30 days must have looked for work in the 4 weeks prior to the survey in order to be classified as unemployed.  Previously, such persons did not have to meet the job search requirement in order to be included among the unemployed.

 

 

In economics these are all considered minor, incremental improvements for collecting the data. For example, using a computer questionnaire instead of a written one does not materially effect the numbers. That is why the BLS numbers are used by everyone no matter thier political leanings. Cato uses it in all of their studies as does the Brookings Institute.

 

Many of the changes in this pdf don't even effect the official unemployment rate. Rather they effect other measurements that the BLS takes.

 

A good test of this is to look at the official numbers from month to month after the changes were incorporated.


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1 MAY 2012 at 3:44pm

cicerno

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Originally Posted By ActionJack (1 MAY 2012 1:38pm)

How does the analysis address the question of those workers who've exited the workforce due to the economic downturn, and those workers who might normally retire but, again due to the economic downturn, don't want to retire but have unwillingly exited the workforce?

 

Chart of the Day: Americans Exiting and Entering the Workforce

http://www.theatlantic.com/business/archive/2011/06/chart-of-the-day-americans-exiting-and-entering-the-workforce/239909/

 

 

That is a good question. It applies even moreso to the linked article. It's a question that is constantly considered in unemployment debates. The reason that it is not measured in the official BLS unemployment rate is that it is a very difficult thing to measure. But if you are interested, the BLS does attempt to measure it in the, as referenced above, discouraged worker count. 

 

If you check out BLS' A-15 chart, for example, you will see the measurement that you are looking for:

 

(discouraged workers + unemployed workers)/labor force

 

You can then check out the historical numbers all the way back to 1948. 

 

These numbers are all published, all in the public domain, all public information. 

 

I think that these are more accurate depictions of the current unemployment state, but that accuracy comes at the cost of more volatility in the year to year numbers. 

 

What is not accurate at all is to use the participation rate of an arbitrary point in time as the 'correct participation rate' and then state that the 'unemployment rate should be based on that number. That is a politization of numbers that the BLS has done a very good job of avoiding. 

 

To address the other point you made. The reason that the participation rate is much lower in 1966 is that women were still not incorporated into the workforce. You can look at the numbers broken down by age, sex and race to get a more accurate picture at any point back to 1948. You should look at the current numbers broken down along age lines. It is very revealing as to why the participation rate is currently dipping. 


Here's the plan. We get the warhead and we hold the world ransom for... ONE MILLION DOLLARS! 

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1 MAY 2012 at 4:38pm

ActionJack

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Originally Posted By cicerno (1 MAY 2012 3:44pm)

In economics these are all considered minor, incremental improvements for collecting the data. For example, using a computer questionnaire instead of a written one does not materially effect the numbers. That is why the BLS numbers are used by everyone no matter thier political leanings. Cato uses it in all of their studies as does the Brookings Institute.

 

Many of the changes in this pdf don't even effect the official unemployment rate. Rather they effect other measurements that the BLS takes.

 

A good test of this is to look at the official numbers from month to month after the changes were incorporated.


 

I was thinking instead of the total population numbers (potential workers) and the employment rate.

 


"Government is the great fiction through which everybody endeavors to live at the expense of everybody else."  Frederic Bastiat 1801-1850

 

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1 MAY 2012 at 6:27pm

medck

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Originally Posted By cicerno (1 MAY 2012 3:44pm)

These numbers are all published, all in the public domain, all public information. 

 

I think that these are more accurate depictions of the current unemployment state, but that accuracy comes at the cost of more volatility in the year to year numbers. 

 

What is not accurate at all is to use the participation rate of an arbitrary point in time as the 'correct participation rate' and then state that the 'unemployment rate should be based on that number. That is a politization of numbers that the BLS has done a very good job of avoiding. 

 

To address the other point you made. The reason that the participation rate is much lower in 1966 is that women were still not incorporated into the workforce. You can look at the numbers broken down by age, sex and race to get a more accurate picture at any point back to 1948. You should look at the current numbers broken down along age lines. It is very revealing as to why the participation rate is currently dipping. 

 

I agree entirely.  There are a lot of different data series and they each serve as proxies for different questions.  The rise in two-earner families and female labor force participation in the 1970s through the 1990s is one big example that makes the participation rate variable.  More recently we have the baby boomers aging -- which puts a larger proportion of the population into an older age bracket where the labor force participation falls sharply (only 56% of 60-64 year olds are labor market participants and it drops from there).  

 

You can see the age breakdown here:

http://www.bls.gov/web/empsit/cpseea13.htm

 

Indeed, this is probably why the 2007 date is chosen by the author,since  that is when the baby boomers really start exiting the labor force.  Incidentally, the labor force participation rate had peaked in Apr 2000 at 67.3% -- your youngest baby boomer was 55 then, so this is probably the highwater point both for female participation and for the babyboomers as workers.  After that the tide has steadily been heading out, by Jan 2005 it was down to 65.8% and the baby boomers were just about to hit Social Security retirement age.  That we've shaved another 2.2% off the participation rate over 7 years is unsurprising given the size of the babyboomer cohort and the economic crisis.  There's a serious undertow on participation rates as the population numbers shift with the babyboomer group moving from being prime age workers.  It also illustrates why the methodology used in the article is so deeply flawed.

 

Since the participation rate is not the best figure in a time of changing demography/work patterns (unless you are using the figures to demonstrate just those changes in work patterns/consequences of demography), what figures can you use to talk about how many people are working?  AJ looks at one version of the flow into/out of the workforce; I noted the actual number of people who had jobs -- both get at different versions of the question is "are people getting back to work"?  And "how does that compare historically"?   Now, there could be some problems with either of those -- I know some people care greatly that the jobs are private sector rather than govt jobs, so I broke that out.  There is also the issue of how many jobs the labor market needs to create to keep up with population growth, etc.  Fortunately that data is available too and you can have a discussion with consistently collected data over a long period.

 

Originally Posted By ActionJack

I was thinking instead of the total population numbers (potential workers) and the employment rate.

Even from this you would want to exclude the population under 16 and think long and hard about the workers over 65 (or some other older age) for the reasons I gave above.  Given the changes in the demographics in the country, that can lead to severe variation that is misleading if comparing across time (as Cicerno points out).

 



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1 MAY 2012 at 7:54pm

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Originally Posted By medck (1 MAY 2012 6:27pm)

 

Originally Posted By ActionJack

I was thinking instead of the total population numbers (potential workers) and the employment rate.

Even from this you would want to exclude the population under 16 and think long and hard about the workers over 65 (or some other older age) for the reasons I gave above.  Given the changes in the demographics in the country, that can lead to severe variation that is misleading if comparing across time (as Cicerno points out).

 

If I'm understanding you, the comparison to 1966 has some challenges due to demographic changes (like the age was rasied from 14 to 16 in 1967) when viewed in comparison to 2012.  Are the challenges greater or lesser comparing 2007 to 2012 which by the way I believe the authors chose that particular year to mark the beginning of the economic downturn?  That's the only reason I can see to make their point that some who, in their oppinion, should be in the workforce are no longer and not counted towards the unemployment number.  That is by the way the theme I gathered from the article; same methods used historically to collate and present figures while factors not before prevalent lead to alternative conclusions.

 


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1 MAY 2012 at 8:47pm

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Originally Posted By ActionJack (1 MAY 2012 7:54pm)

If I'm understanding you, the comparison to 1966 has some challenges due to demographic changes (like the age was rasied from 14 to 16 in 1967) when viewed in comparison to 2012.  Are the challenges greater or lesser comparing 2007 to 2012 which by the way I believe the authors chose that particular year to mark the beginning of the economic downturn?  That's the only reason I can see to make their point that some who, in their oppinion, should be in the workforce are no longer and not counted towards the unemployment number.  That is by the way the theme I gathered from the article; same methods used historically to collate and present figures while factors not before prevalent lead to alternative conclusions.

 

I think the rationale is that in 1966 you had a large proportion of women who did not work.  This would make it appear if comparing 1966 with any point in the 1990s and 2000s as if there was a serious lack of labor participation.  Now, in a sense, that is true -- lots of women weren't in paid employment (sorry Ann Romney the govt doesn't count stay-at-home-moms as being in the "workforce").  But it doesn't mean they were "unemployed", what the WSJ author is suggesting, rather the social/demographic relations of the time had a lot of single-earner households and fewer female workers.  If you were making an argument about women moving into the workforce, you'd use precisely this data to show that movement.  But it doesn't mean you can then leap to make claims about employment/unemployment in the 1960s/1970s and the 1990s/2000s.

 

We're going through another demographic change now -- an aging population means relatively more people in the 60+ age groups than in earlier periods.  However, people aged over 60 don't participate in the labor market as much as those under 60.  So if you want to compare 2012 with 2007, one thing to know is that 13.3% of the over-16, non-disabled population is over 65 in 2012.  In 2008, it was 11.8%. What does that 1.5% difference make?  Well, labor force participation for those not-disabled over 65 is 23.8% (18.6% for all over 65s), for those 60-64 it is 56%, 55-59 it's 72% and under that it is between 79-83% (until you hit the youth/college crowd).  I don't have the 2007 numbers but my guess is that the movement between 2007 and 2012 is about 1.8-2.0% from under-65s who work in high proportions to over 65s who are primarily retired.  On the high end, a 2% shift from 56% to 23.8% means your participation rate will drop by 0.64% solely due ot the livestyle change (greater retirements) of more older people in the population rather than "unemployment".  It would be more if you counted disabled workers since a greater proportion of older people are disabled.  And that isn't even counting the movement from 72% participation to 56% participation that occurs for the age cohort that has been moving into the 60-64 group from the 55-59 age group.

 

If you were making an argument about the consequences of an aging population, you'd use these figures to say "older people are more likely to be retired.  There are now a greater proportion of old people in 2012 than in 2007.  Thus we see that a smaller proportion of the adult population participate in the labor market because a greater proportion of the adult population are older retirees."

 

Now this isn't to dismiss the concerns about lower labor force participation, I do think that is a problem.  But to say it is "unemployment" is seriously misleading.



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1 MAY 2012 at 9:45pm

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In this climate are older people likely to retire?  I've seem some articles showing an increase in hiring rates for workers over 55 to include workers over 65 in the last few years.  If true this might support the thesis that there is a significant underreporting of the unemployment number, the unemployment trend or both.

[size= small]http://management.fortune.cnn.com/2010/12/08/over-55-and-unemployed-finally-a-bit-of-good-news/

... But another element is economics. Older people who may once have considered retiring are now holding on to their jobs or seeking new jobs, either because their retirement nest egg has diminished or they need the health care benefits that come with a solid job, Baker said. http://lifeinc.today.msnbc.msn.com/_news/2012/03/11/10625396-older-workers-seeing-biggest-job-gains


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2 MAY 2012 at 5:45am

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Originally Posted By ActionJack (1 MAY 2012 9:45pm)

In this climate are older people likely to retire?  I've seem some articles showing an increase in hiring rates for workers over 55 to include workers over 65 in the last few years.  If true this might support the thesis that there is a significant underreporting of the unemployment number, the unemployment trend or both.

[size= small]http://management.fortune.cnn.com/2010/12/08/over-55-and-unemployed-finally-a-bit-of-good-news/

... But another element is economics. Older people who may once have considered retiring are now holding on to their jobs or seeking new jobs, either because their retirement nest egg has diminished or they need the health care benefits that come with a solid job, Baker said. http://lifeinc.today.msnbc.msn.com/_news/2012/03/11/10625396-older-workers-seeing-biggest-job-gains

 

 

Older people might be working a bit more than before -- their workforce participation rate for non-disabled has moved from about 21% to 23% since 1988 (it is 18.6% for all over-65s), but that is still very low and is a drag on the overall rate of 63.6%.  

 

You can see the current figures by age here (disabled and non-disabled), it also includes unemployment rates by age.  It is 5.9% for the over-65s, the lowest of any age cohort:

 

http://www.bls.gov/web/empsit/cpseea13.htm



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2 MAY 2012 at 9:22am

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Originally Posted By medck (2 MAY 2012 5:45am)

Originally Posted By ActionJack (1 MAY 2012 9:45pm)

In this climate are older people likely to retire?  I've seem some articles showing an increase in hiring rates for workers over 55 to include workers over 65 in the last few years.  If true this might support the thesis that there is a significant underreporting of the unemployment number, the unemployment trend or both.

[size= small]http://management.fortune.cnn.com/2010/12/08/over-55-and-unemployed-finally-a-bit-of-good-news/

... But another element is economics. Older people who may once have considered retiring are now holding on to their jobs or seeking new jobs, either because their retirement nest egg has diminished or they need the health care benefits that come with a solid job, Baker said. http://lifeinc.today.msnbc.msn.com/_news/2012/03/11/10625396-older-workers-seeing-biggest-job-gains

 

 

Older people might be working a bit more than before -- their workforce participation rate for non-disabled has moved from about 21% to 23% since 1988 (it is 18.6% for all over-65s), but that is still very low and is a drag on the overall rate of 63.6%.  

 

You can see the current figures by age here (disabled and non-disabled), it also includes unemployment rates by age.  It is 5.9% for the over-65s, the lowest of any age cohort:

 

http://www.bls.gov/web/empsit/cpseea13.htm

I'm not suggesting that people who may be expected to retire are underreported in the unemployment numbers, but rather younger workers may be underreported due to some displacement.

 


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2 MAY 2012 at 10:09am

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Originally Posted By ActionJack (2 MAY 2012 9:22am)

 

I'm not suggesting that people who may be expected to retire are underreported in the unemployment numbers, but rather younger workers may be underreported due to some displacement.

 

 

You are right about younger workers being displaced. The numbers on the younger age groups are catastrophic. If they are 'actively' looking for work, they are counted. If they are not 'actively' looking for work, but have been in the past 12 months, then they are 'discouraged workers' and are counted in that chart. If they've just given up, gone back to school, surviving in the woods, etc, they are not counted. 

 

I think the best picture of the employment situation now is the bottom line on the A-15 chart which includes 'marginally attached workers'. But that has to be compared to past years of marginally attached workers and not the official unemployment rate to get an accurate idea of what is going on.

 

When doing economics research use the right data for the context of the inquiry. The official umelpoyment rate is best used in answering the question 'Has unemployment risen or fallen over the past 't' amount of time?'. 

 

If the question is 'How many people are employed less than they would like to be?' then use the 'marginally attached' data. 

 

If the question is 'Are there more or less 'marginally attached' + 'discouraged' + 'unemployed' over a period of time, use the time series for that measurement.

 

One can spend a lot of fruitful time going over the data on the BLS and BEA's sites. What makes a person a good economist or scientist is to go in and leave the theories, prejudices and preconceived notions at the door and just immerse oneself in the data. Then when someone shoots out a theory, there is a resevoir of information for a reality check.


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2 MAY 2012 at 1:05pm

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Going back to concerns about lower labor participation which I think is the crux of the article, cannot such a concern suggest that what most people think of when it comes to unemployment, we have a significant number of people who want to work and should be working but cannot find work in the current economic condition?  If so, what importance should that have for the electorate?  I agree that a shelving of preconceptions should be made when delving into the government collected data and it should be equally attempted when presented with printed findings.  I don’t think that the initial or even the subsequent appraisal of that article was treated with the same kind of political neutrality that’s been called for in its creation.  The authors’ conclusions may indeed be incorrect but this thread seems to have exposed more preconceptions than an objective reading of the article has presented.  Are the authors’ conclusions undeniably false or not?  Or is it the consensus that their methodology is so flawed that the article deserves no serious consideration?


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2 MAY 2012 at 2:45pm

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Originally Posted By ActionJack (2 MAY 2012 1:05pm)

Or is it the consensus that their methodology is so flawed that the article deserves no serious consideration?

 

That sounds like the right conclusion.



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2 MAY 2012 at 3:14pm

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“Some 80% of the reduction” in the unemployment rate from 10% hit in October 2009 to today’s 8.2% “has been from adults quitting the labor force,” says economist Peter Morici.

http://www.foxbusiness.com/investing/2012/05/02/emac/

Read more: http://www.foxbusiness.com/investing/2012/05/02/emac/#ixzz1tkVS7bGb

 

Flawed statement or just plain inaccurate?


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2 MAY 2012 at 6:07pm

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Originally Posted By ActionJack (2 MAY 2012 3:14pm)

“Some 80% of the reduction” in the unemployment rate from 10% hit in October 2009 to today’s 8.2% “has been from adults quitting the labor force,” says economist Peter Morici.

http://www.foxbusiness.com/investing/2012/05/02/emac/

Read more: http://www.foxbusiness.com/investing/2012/05/02/emac/#ixzz1tkVS7bGb

 

Flawed statement or just plain inaccurate?

 

I think probably flawed.  But before I list a few reasons, I think I should again stress that increasing the labor participation rate is a good objective and that it would be good to get it up, especially .  But this sudden concern about it, especially in light of using it to create a static of "real unemployment" is pretty obvious partisanship.

 

So here are a few flaws:

1. It probably assumes that the Oct09 participation rate is the "right" rate.  That is certainly incorrect solely due to an aging population.

2. "Adults quitting the labor force" hides a host of sins, some that are to be expected, others that are worrisome:

   a. workers who get discouraged and drop out

   b. older workers who retire, early or as planned

   c.  younger workers who have trouble finding jobs [a lot of these don't actually "quit" the workforce, they might never have entered it, being 13 years old in 2009 or perhaps 21 and in college

   d. younger workers who stay in school to upgrade their skills

   e. middle-aged workers retraining/re-educating

 

But the real issue is in your statement about what"the electorate" is to do with these numbers.  Well, we all know that some people want to use it as a cudgel against Obama to say that the declining unemployment rate is not really declining.  But let's say it isn't about blame, this newly-discovered concern with the labor participation rate is about solving problems instead.

 

An "electorate" concerned with more than rhetoric might want to think more deeply about why this is happening and what this means for our economy.  A lot of the people who are non-participants (or unemployed) have low skills or are young with few skills.  The current structure of international trade is shifting low-skill jobs away from the US.  Since the 1970s we've had increasing troubles recovering employment after recessions due in part this fact.  That was the case in 1991-2 and more so in 2001-2.  The current situation continues that trend.  You would, regretably, expect it to take a long time to get employment back up.  Now a policy aimed at increasing worker skills, productivity and employment prospects might well entail more training of younger workers and older workers who lose jobs -- whether through govt-paid retraining, tax cuts/credits, corporate incentives, whatever.  Oddly, this would actually depress the participation rate in the interests of the lowering future unemployment rates of the higher-skilled future workforce.  I am sure there are a host of other solutions, but that is one that has something of a counter-intuitive consequence for the participation rate.

 

You might also think that those who suddenly discover the participation rate might care to look at people who have been talking about it for years and who have an idea of what it means in a broader picture of the economy -- people like Paul Krugman and Brad DeLong come to mind.



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2 MAY 2012 at 6:36pm

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Originally Posted By ActionJack (2 MAY 2012 1:05pm)

 The authors’ conclusions may indeed be incorrect but this thread seems to have exposed more preconceptions than an objective reading of the article has presented.  Are the authors’ conclusions undeniably false or not?  Or is it the consensus that their methodology is so flawed that the article deserves no serious consideration?

 

Is he correct in that the 'official unemployment rate' does not measure the people who have dropped out of the workforce because they haven't looked for work in the past four weeks? 

 

Yes.

 

Is he correct that the official unemployment rate should be 12% (11.9%)? 

 

No. 

 

Is the methodology of using the participation rate of 2007 as what the participation rate should be today and then calculating the 'true unemployment rate' on that basis valid?

 

No. I forget which econ class it was, but we discussed this very subject 20 years ago or so. There has always been a debate about how to accurately measure the labor force. But using a static 'correct' participation rate, while tempting, is not valid. Any econ teacher will explain it the same way I did, perhaps better. If a student used that method on a test he would be marked wrong. This is the main problem I have with the article and why I consider it, at best, misinformation. The author knows he is being misleading, perhaps because he wants to be on tv so is saying something guaranteed to cause a stir. 

 

The correct method he should have used is to state that while the official unemployment rate is 8.2%, the number we should be paying attention to is the discouraged or marginally attached worker rate. Then he should have posted the relevent numbers from that chart showing the trend over time, since 2007 let's say, or better yet, the rates over time in other recession cycles. 

 

Examples:

Marginally attached + discouraged+unemployed+ underemployed due to economic reasons since 2002:

 

2002 10.5 10.1 9.9 9.4 9.2 9.8 9.9 9.5 9.0 9.0 9.4 9.6 9.6
2003 11.0 10.8 10.4 9.8 9.7 10.6 10.5 10.0 9.8 9.5 9.7 9.6 10.1
2004 10.9 10.3 10.4 9.3 9.3 9.8 9.8 9.3 8.9 9.1 9.1 9.1 9.6
2005 10.2 9.9 9.4 8.7 8.6 9.3 9.1 8.8 8.5 8.1 8.4 8.4 8.9
2006 9.2 9.0 8.5 7.9 7.9 8.7 8.8 8.3 7.6 7.6 7.8 7.8 8.2
2007 9.1 8.7 8.3 7.9 7.9 8.5 8.6 8.4 8.0 7.9 8.1 8.7 8.3
2008 9.9 9.5 9.3 8.9 9.4 10.3 10.8 10.7 10.6 11.1 12.2 13.5 10.5
2009 15.4 16.0 16.2 15.4 15.9 16.8 16.8 16.5 16.1 16.3 16.4 17.1 16.2
2010 18.0 17.9 17.5 16.6 16.1 16.7 16.8 16.4 16.2 15.9 16.3 16.6 16.7
2011 17.3 16.7 16.2 15.5 15.4 16.4 16.3 16.1 15.7 15.3 15.0 15.2 15.9
2012 16.2 15.6

14.8

Marginally attached + discouraged + unemployed since 2002:

 

YearJanFebMarAprMayJunJulAugSepOctNovDecAnnual
2002 7.3 7.0 7.0 6.6 6.5 6.9 6.9 6.6 6.3 6.3 6.5 6.6 6.7
2003 7.5 7.4 7.2 6.7 6.7 7.4 7.3 7.1 6.8 6.6 6.6 6.4 7.0
2004 7.3 7.1 7.1 6.3 6.3 6.7 6.7 6.4 6.1 6.1 6.1 6.1 6.5
2005 6.9 6.8 6.4 5.9 5.8 6.2 6.1 5.9 5.7 5.5 5.7 5.6 6.1
2006 6.1 6.1 5.8 5.4 5.3 5.8 5.9 5.6 5.2 5.0 5.2 5.0 5.5
2007 6.0 5.8 5.4 5.2 5.1 5.6 5.7 5.5 5.3 5.3 5.3 5.6 5.5
2008 6.4 6.2 6.1 5.6 6.1 6.7 7.0 7.1 6.9 7.1 7.6 8.3 6.8
2009 9.7 10.1 10.3 9.8 10.3 10.9 11.0 10.9 10.8 10.8 10.7 11.1 10.5
2010 12.0 11.9 11.5 10.9 10.6 11.1 11.2 10.9 10.7 10.6 10.8 10.7 11.1
2011 11.4 11.1 10.6 10.1 10.0 10.9 10.9 10.6 10.2 10.0 9.7 9.8 10.4
2012 10.5 10.2 9.7

 

Now the final argument, and this is what I think you are getting at, is the category of people who have not looked for work in the past 12 months, are not marginally attached to the workforce, are not underemployed, but would be working if we work was available to them, so are counted as out of the labor pool.

 

First note that these other categories are counted in these other charts found on A-15, though not the 'official' unemployment rate. For most purposes, these charts above are the numbers that the author is looking for. 

 

Note also that using 2007 participation rate as a 2012 proxy is not valid, especially with the baby boomer phenomenon.

 

The problem is twofold. Are people in this final 'uncounted' category actually in the labor pool? Then, for those that should be considered in the labor pool for whatever reason, are their numbers both significant and uniquely different from other time periods?

 

My gut reaction is yes on those last two questions. If I was an economist paid to investigate this there is a wealth of data to draw on. I could even use the participation rate as a tool, but only after measuring and discounting as closely as possible the demographic trends from the economic. 

 

I think most economists would agree with me. The article was bogus in everything it said except that the number of people out of work is higher than the official unemployment rate. Of course, that is a true statement every month, every year. 

 

What is your opinion on these charts I copied from BLS A-15? Do you think they are a more accurate picture of underemployment than just using the participation rate from 2007 as a proxy?


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2 MAY 2012 at 8:00pm

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Originally Posted By cicerno (2 MAY 2012 6:36pm)
What is your opinion on these charts I copied from BLS A-15? Do you think they are a more accurate picture of underemployment than just using the participation rate from 2007 as a proxy?


I think they are probably accurate but the author purposely left the underemployed out of his calculation concentrating instead on those who have been out of the workforce so long as to be no longer counted. Peter Morici has suggested so too.  Also, I think we have a period that exhibits some unique aspects.  First we have people who would normally be expected to retire clinging to jobs longer (lost retirement/401K) coupled with a labor scarcity of experienced workers resulting in possibly displacing younger workers.  Secondly, we have people staying out of work longer incentivized by extended unemployment benefits.  People who purposely stay out of the workforce longer will have a more difficult time reentering the labor market.  Finally, when was the last time that a sharp decline in employment was followed by such a dismal recovery?  I think that too would push people out of the accounting for unemployed due to time and scarcity of jobs.  That suggests to me that although there is no intentional underreporting (and I saw no evidence in the article suggesting otherwise) we are to some degree in uncharted waters and what was an acceptable degree of inaccuracy in years passed may be amplified to an unacceptable level today.

 

There seems to be a consensus here that the level of labor participation is too low for what is desired or needed (social security, future unemployment benefits, etc.) but that potential underrreporting does not necessarily equate to unemployment (if I'm understanding the argument) and that although job growth is slow, the electorate should see the reported 8.2 number as an indication of both an improvement in job creation and an improvement in the overall job creation trend.  Is that an accurate summation?


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3 MAY 2012 at 5:20am

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Originally Posted By ActionJack (2 MAY 2012 8:00pm)

There seems to be a consensus here that the level of labor participation is too low for what is desired or needed (social security, future unemployment benefits, etc.) but that potential underrreporting does not necessarily equate to unemployment (if I'm understanding the argument) and that although job growth is slow, the electorate should see the reported 8.2 number as an indication of both an improvement in job creation and an improvement in the overall job creation trend.  Is that an accurate summation?

 

I think that is probably fair.  The various numbers Cicerno is presenting tell much the same tale, a gradual improvement in the employment situation.  Looking at the peak to current levels in each of the three statistics you'd see this fall:

 

Unemployment: -18pc

Marginally attached + discouraged+unemployed+ underemployed: -17.2pc

Marginally attached + discouraged + unemployed: -19.2pc


They all tell the same story -- of them, the "official unemployment" rate is in the middle, although all are pretty close



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