On Friday, the Office of Labor and Economic Growth released the January unemployment figures, showing a loss of 20,000 non-farm payroll jobs nationwide but reflecting a nearly half-point decrease in the unemployment rate. According to the Bureau of Labor Statistics, the unemployment rate decreased from 10.0% to 9.7% in January, leading many to wonder what form of arithmetic the Bureau of Statistics is following.
First of all, the Federal Government conducts a monthly survey in order to calculate how many persons nationwide have become employed, unemployed or fled the labor force altogether. This survey consists of an interview of 60,000 households in separate districts across the country in order to determine growth or reductions in employment in all aspects of American society and in every state of the union. Compared with Pew studies or Rasmussen polls who interview only about 1,000 people nationwide, the government statistics should be far more reliable.
The issue that comes to the forefront of the debate on the reality of unemployment in the US is that of honesty in government disclosures, the ability to skew statistics to create false optimism among the populace and the overall contradiction of cumulative job losses against a declining rate of unemployment. To understand this fully, one must understand how the government classifies citizens in their surveying as well as the political implications associated with this monthly report.
As illustrated above, the government relies upon a survey of 60,000 households, or 110,000 individuals, in order to produce each monthly report. However, as the old adage goes, ‘the devil is in the details’. Persons who are not employed, yet have given up looking for work are considered “out of the labor force”. These are the folks the mainstream media and many politicians have deemed “the discouraged” citizens who have left the labor force. But, what constitutes leaving the labor force to the government is not the same as a citizen would understand. For example, an engineer in Flint, Michigan may have no prospects for employment in their respective field because there are so few available positions for engineers in the entire State of Michigan. Or, perhaps they possess only a few years of experience in that industry compared with hundreds of other unemployed engineers seeking the same positions. This engineer would be considered out of the labor force.
The government also determines that persons who work for family members in an unpaid capacity are considered ’employed’. Thus, John Doe works ten hours per week assisting his father with his government subsidized farm. He is considered ’employed’ and will be marked in the created jobs column of the federal ledger. Furthermore, Jane Doe is a long-time sales specialist who was released from employment last January. She now assists her sister who is a single mother by watching her two children in order to help her sister reduce her child care budget. She is unpaid but will be considered ’employed’ by the Fed. This begs the question, “If John Doe is unemployed yet decides to perform home renovations while seeking new work, is he considered ’employed’ by the Fed”?
One final example of the disconnect between government reporting and the reality of the situation comes in the world of Unemployment Insurance. In many states across the union, unemployment benefits have been extended to unprecented lengths. In Michigan, one could maintain their benefits for more than two years depending upon their circumstance. However, normal unemployment benefits are granted in intervals of 26 weeks for those who held the same position for one year. Here is the denominator to this equation. Anyone who has been collecting unemployment benefits for more than 26 weeks will not be counted among the unemployed. Thus, those who are still receiving state benefits in their 27th week are considered ‘out of the labor force’ or ’employed’.
Upon understanding the government method of determination, one can raise many questions in regards to the reality of our current situation. How can the rate of unemployment decrease as more jobs are cumulatively shed? Simple, the labor force decreased by a greater quantity than jobs that were lost. Yet, Chris Rupkey, chief economist for Bank of Tokyo-Mitsubishi in New York touted the report saying, “The long winter of the Great Recession seems to be drawing to a close. There is no ‘new normal’ or structural impediment to this recovery.” A very promising remark, yet not indicative of the reality for those who remain unemployed and see no changes to the positive in the labor market.
In the end, a survey of 110,000 people in a nation of 305 million will never truly indicate the reality of unemployment, especially not in times of strife. Furthermore, as we draw nearer to an election year with many high stakes legislation hinging on the results of November’s mid-terms, it will be impossible for anyone to fully understand the reality of the unemployment picture, as many politicians will rise or fall based upon the perspective of their constituency in November.