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Is the Unemployment Rate Really 13.2%?
This is a very weak unemployment report as every important qualitive measure of unemployment showed further weakness. There is no recovery based on the data. From the Bureau of Labor Statistics:
Nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction, manufacturing, andwholesale trade, while temporary help services and health care added jobs.
This is the official line. Let's take at a look at some of the statistical manipulation needed to come up with a 10% headline unemployment number.
Civilian Labor Force
The civilian labor force participation rate fell to 64.6 percent in December. The employment-population ratio declined to 58.2 percent. (See table A-1.) The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was about unchanged at 9.2 million in December and has been relatively flat since March. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
The civilian labor force participation rate continues on its remarkable and historic downward trajectory. In order to appreciate the significance of such a contraction, it is critical to understand what the civilian labor force participation rate represents.
The civilian labor force participation rate represents the percentage of eligible, working-age individuals actively seeking work- which means looking for work in the past 4 weeks. If you haven't looked for work in the past 4 weeeks, you are no longer considered unemployed in the government's land of make-believe.
Now, let's try to get a sense of how bad the unemployment situation is in what the average person would call reality, and not the land of government statistical make-believe. Curious minds will be asking why the civilian labor participation rate is declining at such a rapid pace. The answer lies in the protracted nature of the current economic downturn. From the BLS:
Among the unemployed, the number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up, reaching 6.1 million. In December, 4 in 10 unemployed workers were jobless for 27 weeks or longer.
It's pretty clear that when 4 out of 10 individuals are unemployed for more than 6 months, we are talking about an environment where employers are simply not hiring. When employers stop hiring, people give up looking for work, which means they are no longer part of the civilian labor force. This individual is not considered by the government as unemployed, but as a 'marginally attached worker'.
About 2.5 million persons were marginally attached to the labor force in December, an increase of 578,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
Below is a graph of 'discouraged workers', a subset of marginally attached workers, which represents those who want work, but are not actively seeking work due to perceived weak economic conditions. I like to think of the 'discouraged worker' as an indicator of current hiring conditions. If employers are really hiring, the discouraged worker should disappear rather quickly; instead we are experiencing a continued and relentless upward trend in this category of worker.
True Unemployment Rate
I think most of us can agree that the 2.8 million 'marginally attached' workers are in fact, unemployed. If we add the 2.8 million marginally attached workers to the labor force and consider them as unemployed, we get a 11.6% unemployment rate.
Now let's incorporate what we know about marginally attached workers and the civilian labor force to come to a truer unemployment rate. Let's assume for a second that the labor participation rate is at the 67% level we saw in the beginning of the decade and see the effect this has on the unemployment rate.
This will require some simple mathematics.
The current labor force is 236,933,000. An increase from the current 64.6% labor force participation rate to 67% would be met by an attendant rise in labor participants from 153,059,000 to 158,745,000. So about 5.7 million people would be added to the labor force. If we assume the labor force participation rate declined because of an increase in marginally attached workers (unemployed for less than 12 months) and other forgotten individuals (unemployed for more than 12 months), we come up with an effective unemployment rate of 13.2% .
So, the true unemployment rate -which I define (as I think most would) as ALL people who want work but just can't find it- probably lies somewhere between 11.6% and 13.2%. This figure incorporates both marginally attached and other effectively unemployed persons, and the historica discrepancy in labor pariticipation rates.
If you consider individuals working part-time for economic reasons as unemployed, you get an unemployment rate north of 17.4% (U-6). The U-6 rate gets bandied around a lot, but it is slighly misleading as a "broad measure" of unemployment because it incorporates those working part-time for economic reasons. So for the sake of this article, I will assume that these people are employed.
In short, the unemployment situation is a lot worse than government statistics would suggest, and this weakness will eventually be reflected in our economy.
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Broader U-6 Unemployment Rate Increases to 17.3% in December
By WSJ Staff
The U.S. jobless rate was unchanged at 10% in December, following a decline the previous month, but the government’s broader measure of unemployment ticked up 0.1 percentage point to 17.3%.
The comprehensive gauge of labor underutilization, known as the “U-6? for its data classification by the Labor Department, accounts for people who have stopped looking for work or who can’t find full-time jobs. Though the rate is still 0.1 percentage point below its high of 17.4% in October, its continuing divergence from the official number (the “U-3? unemployment measure) indicates the job market has a long way to go before growth in the economy translates into relief for workers.
http://blogs.wsj.com/economics/2010/01/08/broader-u-6-unemployment-rate-...
As other commenters have noted, BLS calculates several versions of the unemployment rate, some of which are similar to the one you have put together, others quite a bit higher. Now, this sort of exercise has been done by other people at other times, but it is still worth running through the exercise again. The shame here is to taint the exercise with more "conspiracy"-style blather, as included in the following quote:
"This is the official line. Let's take at a look at some of the statistical manipulation needed to come up with a 10% headline unemployment number."
Official line? Well yes, it is, but "line" seems a bit perjorative when BLS actually cranks out numbers very much like yours through similar methods and publishes them every month. Manipulation? Well, yes, in a purely denotative sense. But you "manipulate" data in the denotative sense to arrive at your estimates. Can't rub one number against another to get a third without "manipulation". Again, since BLS publishes more or less the same rates you do, and a higher one, the connotation of "manipulation" is inappropriate. English, rich in vocabulary as it is, has a better choice. Try "calculation". Works great and carries less baggage.
I think this post doesn't sufficiently express the fact that BLS manipulates the headline unemployment number (downward) for political reasons.
Political manipulation of supposedly objective indicators is de rigueur in the US, witness the CPI and the FASB. It's best to acknowledge the fact, rather than try to weasel out of it, as you have attempted.
If I remember right David Rosenberg was talking about the historic spread between the unemployment rate and U6 is about 4%. That puts the 13% jobless rate spot on with previous Gov't "accounting" methods for unemployment.
Real full unemployment rate probably 18-22%.
the pre-clinton methodology reports 22% unemployment
as john williams so faithfully calculates....
so to the fucktards talking about a recovery all
i can say is your lobotomy succeeded...
Static: the BLS statistics are dry - this post tells the real, human story and why the lies are so intolerable.
Fewer jobs, more people entering the labor force all the time by immigration and maturity, and unemployment goes down.
Proving once again that UE rate is a number created wholly out of fiction.
The tolerance for error is +/- 1500%.
Don't be a fool, of course it's not.
BLS still releases the U6 each month, which is total unemployed and underemployed (go the the link below to see detail definition).
The U6 is now 17.3%, up from 13.5% in Dec. 2008. So, the official BLS number is close to your estimate. FYI to save you some calculation and blogging time in the future.
http://www.bls.gov/news.release/empsit.t12.htm
Who put labor in the BS.gov??