Wednesday, February 10, 2010

The Unemployment Rate

I just wanted to clarify a couple of things that came up in class and offer some criticisms (by others) of the unemployment rate.

For my own benefit, Alternative measures of the unemployment rate: Table A-12 has been changed to A-15.

A couple of graphs first:

U-3 vs U-6 unemployment since Jan 2007.

U-6 as a percentage of U-3 since Jan 2007

Finally, here is a comparison between the seasonally adjusted numbers and the "raw" series (this is U3).

Seasonally Adjusted and Unadjusted

Okay, I want to clarify "marginally attached" and "discouraged workers". Discourages workers make up about half of marginally attached workers. Also note that to be considered either marginally attached or discourages you either have to have been employed or have looked for a job within the last year. Otherwise you are not part of the labor force at all.

From the BLS glossary:

Marginally attached workers (Current Population Survey)
Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.

Discouraged workers (Current Population Survey)
Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.

Someone had also asked about how illegal immigrants are counted. From the Q&A page:

Does the household survey count illegal immigrants?
The BLS cannot determine to what extent illegal immigrants are reflected in the household survey, though it is likely that it does include some illegal immigrants. The household survey does not include questions to identify one’s legal status, but it does include questions about whether respondents were born outside the U.S. The CPS shows that foreign-born workers (whether legal or illegal) accounted for about 16 percent of the labor force in 2007 and about 48 percent of the net increase in the labor force from 2000 to 2007.

Okay so time for some criticism:

Eric from Sunday Macro sent me a couple of articles by a NY Post columnist John Crudele. One of them outlines a number of things that are worth addressing. Bear in mind that this was written after the December unemployment numbers was released. I essentially agree with Crudele except his tone and his complaints about the "birth/death" model which as far as I can tell has nothing to do with the "headline" unemployment number.

The birth/death model is a statistical tweaking of the Current Employment Survey (CES) which is a survey of businesses. The CES numbers accompany the unemployment press release but does not factor into the "unemployment rate" that comes from the Current Population Survey (CPS) which is a survey of households. The CES contains a lot of information about hiring and firing in industries and gives an overall picture of "jobs created or lost" but it is separate measure. They fill in gaps in their ability to survey new business or firms that have go out of business with an estimation, this birth/death model.

Its important to keep this in mind because often news reports will say "x numbers of jobs lost" which comes from the CES (business survey) and then the "unemployment rate" which comes form the CPS (household data). Those numbers may not make sense when put together but its reasonable that they do not since they measure different things.

As far a Crudele's tone. I'm perfectly fine with criticizing the statistical measures. However, because these are statistical measures (not facts!) there are necessarily somewhat arbitrary judgments that need to be made and it is impossible to make such judgments in a way that defy criticism.

I agree that there is probably some amount of "politicking" going on with the numbers to engineer them to look better. The Goolsbee anecdote in the article though is a good example of the politicking involved in criticizing the number too. One thing that bugs me about Crudele is that he often invokes John Williams' who runs Shadow Government Statistics (SGS). SGS publishes alternative economic indicators (such as unemployment and inflation). The SGS numbers always look worse than the official numbers and John Williams has made some apocalyptic claims that garnered a lot of attention like in this Reuters article from January of last year:

By his count, if unemployment were still tallied the way it was in the 1930s, today's jobless rate would be closer to 16.5 percent -- more than double the stated rate.

I expect that unemployment in the current downturn, which will be particularly deep and protracted, eventually will rival, if not top, the 25 percent seen in the Great Depression," Williams said.

Ignoring the fact that the BLS did not calculate the unemployment rate in the 30s my big issue with John Williams is that--try as I might--I have not found any hints to his methodology for his alternative measures. The BLS on the other hand has wholly transparent data and methodology which is for my money the best and most honest thing you can do with any kind of statistical work. Such a thing requires a lot of work by the press and by citizens, which I suppose is the real problem.

Anyway here is the article. It reiterates a lot of the stuff I brought up in class:

Jan 12, 2010

This'll make you laugh.
Back in November 2003 an economist named Austan Goolsbee from the University of Chicago wrote an op-ed piece for The New York Times criticizing a Labor Department announcement about job growth the month before.

And he attacked the idea that the country had just experienced nothing more than a mild recession.

"Unfortunately, underreporting unemployment has served the interest of both political parties," wrote Goolsbee. "The situation has grown so dire, though, that we can't tell whether the job market is recovering."

OK, I promised you a laugh. So here it comes.

Goolsbee no longer works at the University of Chicago. He now has a job at the White House as President Obama's top economic adviser.

So the president and Goolsbee will now have to convince the American public that the slight statistical improvement in the employment situation over the past year really is credible -- even if Goolsbee doesn't believe it.

Laughing yet? Of course not. There's nothing funny about what we went through either back in 2003 after the 9/11 terrorist attacks or what we are experiencing now.

As you already know the Labor Department last Friday announced that another 85,000 jobs disappeared from the economy in December and that the unemployment rate stayed, unbelievably, at 10 percent.

On one level it was -- to say the least -- a disappointment for the White House, Wall Street and every American who is out of work or thinks they might be.

Yet on another level, the negative 85,000 figure was a blessing for Goolsbee and President Obama.

At least, as they are quick to point out, this job loss wasn't as bad as the hundreds of thousands per month that were coming earlier this year.

As any regular reader of this column already knows, I take the side that Prof. Goolsbee took when he was in Chicago -- the government's employment numbers aren't believable.
I thought it would be interesting today to present a few (not-so) fun facts about the jobs market.

Fact 1: The next employment report will be worse.
When the Labor Department puts out the January employment figures on Feb. 4, they will include an assumption that a lot of companies went out of business.
This is something called the birth/death model that is used by the department. Last year it caused 356,000 jobs to be subtracted from the January job count.
So, the next employment figure should be shockingly bad.

Fact 2: The birth/death model will then turn optimistic in the spring, causing jobs that really don't exist to be added to the Labor Department's count.

It won't make the people who are unemployed feel any better. But it could give Wall Street another excuse to rally and, really, isn't that what it is all about?

Fact 3: Nobody in the media will pick up on this, but the Labor De partment will also do something called a benchmark revision on Feb. 4 that will subtract around 840,000 jobs that the government thought existed, but really don't.

This will mostly make up for the mistakes created by the birth/death model.

Fact 4: That 840,000 job adjustment will only correct errors up to March 2009. Mistakes for the April 2009 to March 2110 period will be corrected next year.

Fact 5: You keep reading that the unemployment rate stayed at 10 percent. But the press has been playing up the 17.3 percent rate that includes those "underemployed," meaning they can't find a full-time job but want one.

I've been mentioning that under-employed figure -- called U-6 by the Labor Department -- for years and I'm glad everyone else has finally caught up.

But that larger figure doesn't include a huge number of unemployed folks who have given up looking for work because they feel the search is hopeless. Last Friday's report said 661,000 such people left the labor force in December.

If you count these hopelessly unemployed, the real jobless rate is probably close to 22 percent. If these all weren't such important issues, this would all be a big joke.

No comments:

Post a Comment