“Unemployment” @ 7.8% – What Can We Make of This?
- By Simple Politiks
- 12 October, 2012
- 25 Comments
The BLS released the most recent unemployment statistics just a couple of days ago. Their report shows the unemployment rate has dropped to 7.8%, the lowest unemployment rate since President Obama has taken office. Some people (especially the people at FOX news) are suspicious of this number. The timing of the election, Obama’s debate performance and multiple other factors in politics all play into this suspicion. Here’s a FOX News video:
So yes, politically speaking the low unemployment rate is coming at a crucial time. But as you can see from the picture at the beginning of this post, the unemployment rate has been steadily decreasing ever since November/December of 2010. The sharp decrease in September, as surprising as it is, isn’t out of the realm of possibility. I highly doubt anybody is “cooking the books” or anything ridiculous like that. FOX News COMPLETELY trusted the BLS when its statistics made President Obama look bad; they couldn’t stop defending the statistics back then! So I truly believe they are just trying to get as many people to dislike President Obama as possible. Nobody is cheating the system…
With that said, you should know that the unemployment rate that we normally hear about is still misleading. I doubt there was any cheating involved, but the 7.8% might not be an improvement.
The most telling rate is known as U-6. What’s the difference?
Intro to Macroeconomics time!
- U-3 (Official Unemployment Rate) – Total unemployed, as a percent of the civilian labor force.
- U-6 (Broader Unemployment Rate) - Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.
NOTE: Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. Updated population controls are introduced annually with the release of January data.
So what can the layperson make of the difference between the U-6 rate and the U-3 rate? U-6 accounts for all of those who fall into the 7.8% (official unemployment rate) IN ADDITION TO underemployed workers AND “discouraged workers” (workers who are no longer actively seeking a job). Put even simpler?
It paints a much more realistic picture of the true unemployment rate in America.
It is more accurate because the official unemployment rate (the 7.8%) doesn’t take into account the underemployed or the discouraged workers. So if somebody decides to stop looking for work altogether the official unemployment rate will decrease even though that person didn’t actually find a job. I’m sure you see the problem. Naturally, that means we should really be looking at this rate to determine if the 7.8% rate is truly significant. Here are the possible scenarios:
- If U-6 decreases significantly then the decrease to 7.8% in official unemployment is validated. We are better off.
- If U-6 increases then the number of jobs created were outnumbered by the jobs lost + new underemployed/discouraged workers. We are really worse off.
- If the U-6 stays the same then the jobs gained and the jobs lost essentially cancelled each other out. There were just more underemployed/discouraged workers this time, so the official unemployment rate still dropped significantly. Not much has changed.
U-6 was 14.7% in August and 14.7% in September. There was no change from August to September, so the decrease in the official unemployment rate is misleading. Not much has changed. Were the books cooked? Highly doubt it. Just more underemployed and discouraged workers. No need to start conspiracy theories… Jeez.
*** The numbers were taken from seasonally adjusted unemployment statistics. Seasonal unemployment is unavoidable and therefore unnecessary to include in these statistics. ***
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Not cooked books perhaps. But this does show once again how unrealistic the unemployment numbers are. That is not a current administration issue however. This has been going on a long time.
Yes, the books aren’t cooked but there is a more realistic way to look at unemployment other than our official rate.
But even so, all of those rates have margins of error. They are compiled through surveys of 60,000 households. That’s a large sample size but the population of the U.S. is over 310 million people. Some error is unavoidable. Luckily it is usually a good rough estimate.
Henry Blodgett in Business Insider said California reported their numbers late and they weren’t included in the statistics. We have openings for mercenaries, militia men, and propaganda specialists. We need a consultant who can make our unemployment numbers look like 7.8%. Currently it’s about 14% not including those workers arrested or killed for protesting unemployment. The unemployment numbers will be going up after we round up the currency speculators and traders, but let them go after a beating and warning. Your propagandists have it easy, but it appears that they’re doing a good job. We need a better crew — the sanctions are causing problems. Down with the Great Satan and Best of luck. Have a nice day.
I think there are too many people.
Americans can’t afford to work for $1.00 an hour and zero benefits, so, corporations move production to China, S.E. Asia and other locations that will increase profits by lowering costs. It’s just math. It has nothing to do with who IS or ISN’T President. DUH!
Here is your future…..
If you want to eat develop a MARKETABLE skill and DO NOT go so deep into debt that you can’t get out. You should also take into consideration that NO ONE…… EVER…… lies on their deathbed thinking…… “CRAP! I sure do wish I worked more hours and made more money.”
Yeah, it is pretty silly to assume one President has complete control over things like the unemployment rate. The policies they endorse or implement themselves can have a great effect on the outcome, though. But from all of the controllable factors I think the Congress has the biggest influence. And right now the Congress is essentially the embodiment of polarization. Filibusters are through the roof and they can’t agree on many of the policies that aren’t filibustered. Doing something is always better than doing nothing… Which is why times of peace and compromise are always much better.
Thanks for helping me keep it in perspective…
Anytime
Fascinating results! I agree that Fox News is, at least half the time, too quick to judgment.
Great blog!
Rgds,
Harvey
Yeah, all news stations have their biases. FOX is frequently more reactionary.
Thank you! Glad you like it!
I saw two economists on PBS Newshour who both know the drill and offered that these bureaucrats take pride in their work and do their darnedest to get it as right as possible. The second comment I would use is from those who honestly believe the moon landing was staged in 1969. The correct answer to both issues, do you honestly believe that people could keep this a secret they were staged? The final comment relates to the Congressional Budget Office (CBO) by example. Have you ever noticed when the CBO projections agree with a politician’s assertion they are unbiased, yet when they disagree with the same politician they are fudging the numbers and biased. These groups exist for a reason. They are not perfect, but I trust them more than I do the fingerpointers. Just my two cents. BTG
I wholeheartedly agree.
Thanks for the insight and the like on my last post (I actually just did a follow-up, so check it out when you have a chance: http://wp.me/p2Loav-1U). My questions for you are: Do you think
entrepreneurship is a viable answer to the unemployment crisis? Do you think it is one of the reasons the unemployment rate has decreased over the past couple of years?
Liars figure.. Figures lie.. its a number game and I feel that ALL governments lie about important figures like GDP, inflation, unemployment etc.. its a given.. I like ShadowStats.com skeptical view of ‘official figures’.. (he puts US unemployment at 23%!)
How does he calculate that figure?
All statistics have margins of error because there is no perfect test. But that doesn’t discredit eveything about the tests… Most tests produce fairly accurate statistics, especially the tests with larger sample sizes. It is just a matter of looking at the right number, like U-6, when the situation calls for it. That’s all.
Do you have any reason to doubt the BLS’s findings? You can’t just refuse to believe in everything the government tells you simply because you don’t want to trust it. You need some reliable evidence, and plenty of it, otherwise your belief is illogical.
Data points deceive, but the trend is your friend. Whether or not you believe it should be 6.8%, 8.8% or somewhere inbetween, the trend between September-10 and September-12 is positive.
I get Fox news and the Comedy Channel confused so often these days.
One simple comment about unemployment or other statistics: Never believe in any statistics you didn’t forge yourself…
Haha that makes it very difficult to believe anything! I think I understand what you mean though.
Haha that makes it very difficult to believe anything! I think I understand what you mean though.
Thanks for stopping by.
Yeah, I like to be critical of any “official” reports. F.ex. in Germany or Switzerland, those official unemployment rates don’t reflect the whole truth. People who don’t receive any government money anymore or who are in special programs for the unemployed simply don’t appear among those numbers. And I guess in our today system it is every government’s interest to make things look more “positive”.
Have to read through your blog more closely. It made a good first impression on me. Not keen on politics but on more critical views on the whole circus!
Yeah as I stated in the post, the Official Unemployment Rate doesn’t even count people who have stopped looking for work entirely. It also doesn’t include the underemployed, another significant statistic. Small fluctuations in the rate are relatively insignificant in my opinion. As for the rate’s general validity, I’d say its a useful but crude measurement that should be compared to more in-depth unemployment rates regularly (like U-4 through U-6).
I’m glad you like it! Many of my older posts need to be rewritten (the ones that were published before September) but for the most part I’m happy with what is up right now. Feel free to contribute to any other conversations.
Hey you brought up one of the thoughts I had about how to solve parts of that problem. I think it isn’t only an unemployment crisis but rather the direct consequence of our overly capitalist system. Everything going to extremes does have negative impacts. In our system of today it meant moving production to cheaper countries and reducing fte in order to get ever higher profits for the shareholders. And as we are competing globally, there are more and more people on the labour market. Means more people unemployed and less companies inclined to train people to get them where they need them to be. It is cheaper for the company to “import” someone else who already brings in the skillset which is needed for a job. This is where the government steps in. Government money helps reduce the hardships caused through this trend. But that’s also one of the reasons why the budgets and debts of most western countries got larger and larger over the past years.
Looking at how Grameen and other microfinance projects worked in poor countries, I really believe entrepreneurship would be a solution to that problem. But I think it would have to come with cuts in social welfare money, reduction of bureaucratic obstacles, maybe restrictions for huge global companies with large market power and definitely financial support for entrepreneurs. I truly believe entrepreneurship and more social entreprises could be a viable answer. But I don’t think western governments do much in that respect up to now.
I don’t usually read topics as the ones you have on your blogs – but they’re actually very interesting!! And thanks for stopping by by my blog
Garnering the approval of readers who do not typically enjoy politics is the most gracious of compliments! Thank you very much, and it was my pleasure.
Here is a solution
http://darkofficehumour.wordpress.com/2012/12/11/unemployment-the-secret-revealed/