Monday, January 11, 2010

Readers Do You Agree? Unemployment Rate Artificially Inflated Until May/June

I have a question about how the Dept of Labor calculates the Official (U3)monthly unemployment rate. (see definition below). My question is, since the Obama administration has extended the number of weeks of eligibility for unemployment, won't the official unemployment rate be skewed because those who would have been dropped (and termed "discouraged workers") at 26 weeks during the Bush administration are now receiving two or more extensions (52 and up to 76 weeks)?

I believe the calculation is:

Total # of Workers Unemployed (minus discouraged workers)
Total # Workers Unemployed (minus discouraged workers) + Employed


(1000 - 100)
-------------------------------- = 9% (vs 10%) and variance would continue to grow
(1000 - 100) + 9000 .. as # on extensions grow

As you can see, by the discouraged workers remaining in the equation vs being removed as they have in the past, the unemployed rate stays higher than without the unemployment extensions and these workers being taken out of the equation.

While I recognize these unemployment extensions are important and are needed, are they skewing the unemployment rate? If so, I speculate that the unemployment rate will stay at 10% until May/June timeframe since the bulk of the layoffs occurred at the end of 2008 (end of Bush term).

Once the chronically unemployed are removed from the equation, in May, it will appear there is a big improvement in our unemployment rate.

Shouldn't we talking about this?

Definition from Wiki:
Bureau of Labor Statistics measures employment and unemployment (of those over 15 years of age) using two different labor force surveys conducted by the United States Census Bureau (within the United States Department of Commerce) and/or the Bureau of Labor Statistics (within the United States Department of Labor) that gather employment statistics monthly. The Current Population Survey (CPS), or "Household Survey", conducts a survey based on a sample of 60,000 households. This Survey measures the unemployment rate based on the ILO definition. The data are also used to calculate 5 alternate measures of unemployment as a percentage of the labor force based on different definitions noted as U1 through U6:

U1: Percentage of labor force unemployed 15 weeks or longer.
U2: Percentage of labor force who lost jobs or completed temporary work.
U3: Official unemployment rate per ILO definition.
U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.
U6: U5 + Part time workers who want to work full time, but cannot due to economic reasons.

Note: "Marginally attached workers" are added to the total labor force for unemployment rate calculation for U4, U5, and U6. The
BLS revised the CPS in 1994 and among the changes the measure representing the official unemployment rate was renamed U3 instead of U5.
The Current Employment Statistics survey (CES), or "Payroll Survey", conducts a survey based on a sample of 160,000 businesses and government agencies that represent 400,000 individual employers. This survey measures only nonagricultural, nonsupervisory employment; thus, it does not calculate an unemployment rate, and it differs from the ILO unemployment rate definition. These two sources have different classification criteria, and usually produce differing results. Additional data are also available from the government, such as the unemployment insurance weekly claims report available from the Office of Workforce Security, within the U.S. Department of Labor Employment & Training Administration.
..The unemployment figures indicate how many are not working for pay but seeking employment for pay.


ultima said...

We have had extensions of unemployment benefits in the past under various Administrations. Are you saying those utilizing these extensions weren't counted as unemployed in the past but now they are or are you saying the extensions have been greater under Obama and therefore more people are characterized as unemployed because as long as they are on employment compensation they are considered "unemployed" rather than "discouraged".

A true measure counts them all. The discouraged category is all too convenient a way to avoid showing exactly how many people are out of work. I see the "discouraged" category as an arbitrary construct that enables the government to minimize the problem. Fortunately some of the talking heads have disclosed the total number of unemployed at somewhere above 17%. That's the number we should be thinking about. After all they all have to find a way to stay alive and provide for their families.

I Travel for JOOLS said...

" Jan. 9 (Bloomberg) -- An exodus of discouraged workers from the job market kept the U.S. unemployment rate from climbing above 10 percent in December, economists said.

Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent, according to economists including David Rosenberg at Gluskin Sheff & Associates in Toronto and Harm Bandholz at UniCredit Research in New York.

“The actual unemployment rate is higher than shown by the official numbers,” Bandholz said yesterday after a Labor Department report released in Washington showed the economy unexpectedly lost 85,000 jobs in December while the jobless rate was unchanged.

About 1.7 million Americans opted out of the workforce from July through December, representing a 1.1 percent drop that marks the biggest six-month decrease since 1961, the Labor Department report showed. The share of the population in the labor force last month fell to the lowest level in 24 years.

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- rose to 17.3 percent in December from 17.2 percent.

The number of discouraged workers, those not looking for work because they believe none is available, climbed to 929,000 last month, the most since records began in 1994."
The real unemployment rate is over 17% and rising when you count discouraged workers. When those workers try to come back into the labor force, then that 10% figure will increase. At least that's the way I understand it.

Dee said...

Yes, we have had extensions in the past. The way I'm reading the description of the U3 Official Unemployment Rate, this is the number rate minus discouraged workers. Workers are not considered discouraged when they are still on unemployment. Once unemployment stops and the workers are still unemployed, they are considered "discouraged."

Also, as Jools said, part time employees and agworkers are not considered in the U3 equation.

All I am saying is, under the Bush administration, without the unemployment extensions, the unemployed fell into the "discouraged" group far more quickly. So as Obama extended unemployment, so he extends the rate of unemployed into the U3 equation. If he had not extended unemployment and instead given rebates (like Bush did), our U3 official unemployment rate would be less than 9% now.

James said...

No, it is unlikely to be the case. Unemployment statistics are generated through a separate telephone survey contracted by the Department of Labor. The anonymous survey is not connected to any unemployment benefits and contains multiple questions to determine the extent to which people truly are actively looking for work or not.

It is possible that people could be responding in ways to indicate active search for work because they fear retribution in the form of lost benefits if they answer negatively, but such a link is not directly related to unemployment benefits and thus would have to be independently verified.

Vicente Duque said...

Very Interesting, Informative and Useful article Mr Weeks.

Census, Registration and Elections.

It is very difficult to think rationally and weigth thinks with measure in the middle of so much heat, emotion and passion about Immigration, legal or not, what is legal ??, what is crime or a criminal ??, the language that we use is never "fair and balanced".

But I am slowly reaching some conclusions :

1) The borders have to be controlled and the "Border Fence" may have been very useful, I believe. Nobody in his rational mind should be asking for open borders or total amnesties.

2)It is true that some people that have stayed for many years and working productively should be given amnesty, probably conditioned to fines, exams, etc ... The time should be calculated by knowgeable people and not in the middle of Tea Party.

3) It is an economic Truth that many Latino Immigrants ( and others ) have greatly benefited the nation.

It is also a Great Truth that big progroms result in Economic Harm for the General Population. History has too many examples.

4) There are many politicians and elected officials fishing in muddy waters, and surfing over tsunamis of Hate, Fear, Paranoia, Racism, etc ...

5) Mr Obama shold be careful not to advocate for Immigration Reform during year 2010, and I have many doubts about year 2011.

6) Everybody should help for a Perfect 2010 Census, for a Census of Truth, Quality and Perfection. Without fears of being evicted, etc ... That is my belief and conviction.

And everybody should help for Voter Registration ( according to law )

Conclusion :

Nothing could destroy Mr Obama and the Democrats like Bills and Projects of Immigration Reform. The Beehive of Racism, Hate, Fear and Paranoia would kill them.

The best policy is "to do nothing" as Otto Von Bismarck recommended to his secretary when he was old and in disgrance with the fool and idiot of Kaiser Wilhem II.

According to Bismarck Political Processes have a life of their own and the Great Statesman should practice the art of waiting patiently.

We don't know the result of the 2010 census and elections. We don't know who is going to be the Governor of Texas and how Redistrictin is going to operate in Texas, California, Ohio, etc ...

Finally, there is another important process going on called "Voter Registration".

This is the Political Process of Bismarck applied to the Census, Voter Registration and the Elections.

Youth, Minorities, Politics :

Vicente Duque

Vicente Duque said...

Stock Markets believe in Obama and the Democrats - Some investors filling their pockets - Increasing Indexes for Stocks

From Reuters :

"The Dow Jones industrial average edged up 2.95 points, or 0.03 percent, at 10,683.72. The Standard & Poor's 500 Index eased 0.24 points, or 0.02 percent, to 1,145.44. The Nasdaq Composite Index added 0.61 points, or 0.03 percent, to 2,308.51."

This isn't bad, those that invested in March 2009 ( Trusted Obama ) are filling their pockets.

Few Forecasters would have believed in March 2009 that such pretty numbers would be on the screens now.

So the Rich and the Richest, the managers of Funds and Capitals believe in Obama and the Democrats. Otherwise they would take refuge in other Markets, Foreign Markets, Emerging Markets, Gold, Metals, Futures, Treasuries, etc...

Youth, Minorities, Politics :

Vicente Duque

Proletariat Defender said...

Interestingly, I've seen jobless rates vary from 5.6%-34%+.

It all really depends on which numbers you look at.

If you count the underemployed (IE temp or part time jobs) the consensus is roughly 17%.

If we look at the number of residents not working, the number is 66%-ish.

So honestly, no one really knows. Ask the local grocery store employees, they seem to know these things.

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