February 17, 2012

The Unemployment Lie – Election Year Manipulation

By Steve Bussey

Is America’s unemployment rate 8.3%? No, it most certainly is not. How do I know that? I went to the government web site that explains how the unemployment rate is calculated and found some very interesting information.

But first, here are excerpts from a story at Moneymorning.com:

February 6, 2012
BY DAVID ZEILER, Associate Editor, Money Morning

More people have jobs in America this month than they did last month, so says the U.S. Bureau of Labor Statistics (BLS).

But the headline unemployment rate of 8.3% isn’t the whole story.

It’s not that there wasn’t positive news. The addition of 243,000 new jobs far exceeded economists’ expectations for an increase of 150,000. It was the seventh straight month of increases of 100,000 or more.

And yet buried in the BLS report are numbers that paint a different picture.

One of the main reasons the rate dropped, in fact, is because the BLS stopped counting nearly 1.2 million people as part of the labor force.

That’s a record. It puts the labor force participation rate at a 30-year low of 63.7%, significantly below the long-term average of 65.8%.

While it’s true the official number of unemployed fell from 13.1 million in December to 12.8 million, it helps when you simply don’t include 1.2 million in the equation.

The bottom line is that in order to determine an unemployment rate you must first determine your “universe,” or the size of the available labor pool in order to determine how many in that labor pool are unemployed.

Here is how the Bureau of Labor Statistics explained the process on their web site:

Every month, the government contacts 60,000 scientifically-selected households and asks a range of questions about the employment status during the previous week of everyone in the household age 16 and older. We call this (using all the creativity imparted by our economics degrees) the “Household Survey”. BLS uses the answers to this survey to determine the labor market status of the each member of the household, and by extension, of the whole country. The “labor force” consists of all workers who did have jobs—the “employed”—plus all those who did not have jobs, but were actively looking for work and available to take it if offered—the “unemployed”. The headline unemployment rate is the number of unemployed workers divided by size of the labor force.

The headline unemployment rate is the traditional measure of unemployment in the US, and is directly comparable to measurements collected in other developed countries. However, BLS publishes several other alternative measures of labor underutilization to help understand the full employment situation (see table A-15 in the monthly news release for more). You can find more details on how BLS defines and measures unemployment on their website.

Editor’s Note: The author, Andrew Langan is a Policy Advisor in the Office of the Chief Economist at the U.S. Department of Labor.

There are several problems in the BLS methodology:

None of the unemployed homeless are counted unless they are receiving unemployment checks and seeking work because, as far as I know, most homeless don’t have a home telephone on which to receive a phone call from the BLS for their scientific “Household Survey.”
I don’t believe they count panhandling as “employed.”

Next, unemployed people who have become discouraged and are no longer seeking work but living off of a 401(k), other savings, family members, charities or churches are not counted as in the potential labor pool.

The retired, of course, should not be counted but what about those people who were vested in a small retirement and then forced out of their jobs for whatever reason and are living off of their small retirement because they cannot find employment? They’re not counted.
Understand this; if the BLS calls you and you did not recently have a job and did not look for work last week for whatever reason then you are not counted as a member of the “available labor pool” and not factored into the unemployment rate.

So, in order to lower the unemployment rate to 8.3% the Bureau of Labor Statistics just removed 1.2 million Americans or so from the available labor pool and then did the math. This means the 8.3% unemployment number is – or should be – absolutely meaningless.

In fact, as Moneymorning.com and others reported the available labor pool is now smaller (skewed) than any time in the past thirty years and that dates back to 1982 meaning that there is no legitimate comparison between the unemployment rate under the Obama Administration and those of George W. Bush, Bill Clinton, George H.W. Bush and even Ronald Reagan.

Now, I know the Baby boom generation is beginning to retire but how is it that the American labor pool is shrank so dramatically from one unemployment report to another – 1.2 million people, or since 1990 when there were about 248 million people in America and there are about 310 million now, an increase of about 62 million people?

But, before we lay this completely at the Obama Administration’s collective feet we have to understand that the method for calculating the unemployment rate was changed by the Clinton Administration in 1994. We can’t blame the Obama Administration for changing the “methodology” but we can suspect them of diverging from that methodology by removing more than usual, or necessary and proper, Americans from the available labor pool in order to give the illusion that unemployment is coming down during an election.

If you think that position is cynical just sit back and recall every time you’ve heard Nancy Pelosi and other Democrats say “we’ll do whatever it takes …” You fill in the blank. Remember then Speaker Pelosi being willing to go under the wall, scale the wall or parachute in to get Obamacare passed? Do you remember Democrats locking committee room doors in order to keep Republican congressmen out of committee hearings, turning off the lights in the House chamber while Republicans were speaking and even turning off the vote total board to end a vote and claim victory when it appeared they were going to lose an important vote? I remember all of it. Just do some keyword searches on those things and you’ll find them. Then tell me if I’m a cynic or you’re a sheep.

Does this method differ from the past?