Dec

6

I have a dumb question that everyone on television seems to understand but I don't:

If we lost 13,000 jobs in November, how come the unemployment rate declined from 10.2% to 10%?

Stefan Jovanovich replies: 

Base14 counting. The unemployment rate is not based on the number of people who are physically capable of working but do not have jobs; it is based on the official count of the people who qualify to be considered "unemployed". If your unemployment benefits have run out, you are no longer "unemployed" by the BLS's count. Senator Moynihan once said that before you can solve a social problem, you have to be able to quantify it. As the new science of climate change has shown, once you have a political agenda, your data have to match. And, if the facts are stubbornly resistant, you have to change the plain meaning of words until the facts comply. So, early winter snow storms and severe cold become further proof of global warming; and a stock market rally becomes proof of an economic recovery even though the increased corporate earnings are almost entirely the result of cost-cutting by laying off employees and capital subsidies to the people who deal in credit (the Federal bailouts are the carry trade).

Rudolf Hauser notes:

Stefan is incorrect when he writes "If your unemployment benefits have run out, you are no longer "unemployed" by the BLS count." The BLS definition of unemployed has nothing to do with whether or not you are collecting unemployment insurance. You are counted as employed if you worked at all during the past week, were self-employed, or are employed but did not work because of such things as vacation, sick leave, a strike, bad weather, etc. You are counted as unemployed if you have actively looked for work in the past four weeks. Actively looking includes job interviews, contacting an employer, contacting a public or private employment agency, contacting friends or relatives for job leads, using an employment center such as that of a university, sending out resumes or filing out job applications, placing or answering ads, checking union or professional job registers or any other active means of job search. Getting or not getting unemployment insurance is never a consideration. You are also counted as unemployed if you do not look for a job but are on a layoff and expect to be recalled within the next six months. To see questions asked and more details go to the BLS web site.

Dan,  your question is one that is often asked when the two series produce somewhat different results. Stefan's explanation is way off base. The decline in employment you refer to is the number from the payroll series which is based on report to the BLS from firm's reporting that information to the IRS. It is known as the establishment survey. It is benchmarked by the quarterly reports all employers, no matter who small (I filed reports for the people who cared for my mother) for purposes of unemployment insurance premiums. The reported numbers are revised annually based on that benchmark.

The unemployment number is obtained from a different survey. It is based on a survey of households by the BLS. Employment on that series actually increased by 275 thousand by that measure. It is based on the number of people who worked at all during the survey week. It is divided by those people who have been employed or actively looking for work. Naturally, the unemployment rate could decline with a decline in the number of employed (numerator) if the civilian labor force (denominator) declined even more, but of course that is not what happened in November.

Stefan Jovanovich responds:

But, that assumption (that the methodology is sound) is the very problem. The statistical methods can be completely sound and the outputs can be garbage because what is being counted are categorical abstractions that do not match up well to actual human activity. What the BLS has never done –as far as I have discovered– is test its own sampling techniques against data that cannot easily be fudged where enterprise is concerned. I have not found anything from the BLS that makes a comparison between the 1.5 million jobs that were supposedly created by new businesses started in the past year and a half and the actual data for incorporations, fictitious business name filings, and resale number applications– the usual indices for new business formations. Rudolph knows infinitely more about the details of how the BLS works; my point is simply that the tools of statistics can be used to build sand castles if "norms" are accepted at face value. It is like the Romers' presumption that government spending has an implicit multiplier that is greater than 1. That is certainly true– if you are a government employee. What the BLS is increasingly counting is "work" that is itself government employment; and its surveying is missing not only the "black" economy but also the "grey" one of legally-permissible activity that no longer fits the "standard" categories. My personal, non-statistical observation is that the shrinkage of activity in the black and grey markets here in California continues unabated.


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1 Comment so far

  1. Alice Allen on December 6, 2009 12:11 pm

    Great question. Great answers.

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