Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18
Stock Market Investing 2018 - “I Hope I’m Making a Bad Buy” - 11th Jan 18
S&P 500 Fluctuates As Stock Market May Be Topping, Or Not? - 11th Jan 18
SPECTRE Microprocessor Security Flaw - Big Brother = You - 11th Jan 18
7 Market Forecasts 2018 from the Brightest Financial Minds I Know - 11th Jan 18
It’s Not Enough to Be Contrarian - 11th Jan 18
Stocks That Take One for A Roller Coaster Ride Through the Thick And Thin Of Every Single Investment Made - 11th Jan 18
Police Arrest Tree Protester on Meersbrook Park Road, Sheffield - 10th Jan 18
Stock Market Aggressive Sell Signals - 10th Jan 18
The 2018 Decline in Precious Metals - 10th Jan 18
Gold Hits All-Time Highs Priced In Emerging Market Currencies - 10th Jan 18
TMV : 3X Leveraged Short on US Treasury Bonds - 10th Jan 18
Here are the Key Levels in Gold & Gold Miners - 10th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Unemployment Rate: What Is The Real Story?

Economics / US Economy May 18, 2008 - 11:40 AM GMT

By: Ronald_R_Cooke

Economics Best Financial Markets Analysis ArticleIf you have been reading my essays, you know I firmly believe the United States Department of Labor (DOL), Bureau Of Labor Statistics (BLS) understates the rate of inflation (see: CPI: Sophisticated Economic Theory, Terrible Ethics). You also know that a low Rate Of Inflation means that the Department of Commerce (DOC), Bureau Of Economic Analysis (BEA) overstates “Real” Gross Domestic product (see: “American GDP: Can We Trust The BEA Data?” and: “Yes Virginia. This Is A Recession.”).


This raises a question. If there are structural problems with the credibility of our government's reports on the Consumer Price Index and Gross Domestic Product, can we trust the BLS report on Unemployment?

Yes and Maybe.

The BLS reported on May 2, 2008: “ Nonfarm payroll employment was little changed in April (-20,000), following job losses that totaled 240,000 in the first 3 months of the year, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The unemployment rate, at 5.0 percent, also was little changed in April. Employment continued to decline in construction, manufacturing, and retail trade, while jobs were added in health care and in professional and technical services.

Frankly, a 5% unemployment rate lacks statistical credibility and certainly fails to document the pain of America's unemployed. Let's take a closer look at the BLS data:

  • Since its peak in September 2006, construction employment has fallen by 457,000.
  • Over the past 12 months, manufacturing employment has declined by 326,000.
  • Since its peak in March 2007, the retail trade industry has shed 137,000 jobs.
  • The health care industry has added 365,000 jobs over the past 12 months.
  • Professional and technical services employment rose by 27,000 in April after showing little change during the first quarter of 2008.
  • Since October 2007, food services employment growth has declined to an average of 13,000 jobs per month; this compares to an average increase of 28,000 jobs per month for the preceding 12-month period.
  • Total unemployment increased by 11.6% from 6,532,000 persons in April of 2007 to 7,287,000 persons in April of 2008.
  • The number of people who lost their job, or were no longer holding a temporary job, increased by 21.0% from April 2007 to April 2008.
  • The number of people who were told they had permanently lost their job increased by 30.1% during this same period.
  • From Q1 2006 to Q1 2008, the number of Layoff events has increased by 45.3%. They increased by 20.6% from Q1 2007 to Q1 2008. There has been a continuing increase in the number of layoff events, and the number of Total Initial Claimants, since August of 2007.

Despite these data points from the BLS report, the BLS claims the Unemployment Rate has increased from only 4.30% in April 2007, to a negligible 4.76% in April of 2008. Does this create a credibility problem?

Let's look at the BLS definition of “Employed” and ”Unemployed”:

“People are classified as employed if they did any work at all as paid employees during the reference week; worked in their own business, profession, or on their own farm; or worked without pay at least 15 hours in a family business or farm. People are also counted as employed if they were temporarily absent from their jobs because of illness, bad weather, vacation, labor-management disputes, or personal reasons.

People are classified as unemployed if they meet all of the following criteria: They had no employment during the reference week; they were available for work at that time; and they made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons laid off from a job and expecting recall need not be looking for work to be counted as unemployed. The unemployment data derived from the household survey in no way depend upon the eligibility for or receipt of unemployment insurance benefits.”

Statistically speaking, these are narrow definitions. And that is OK. But we must be aware they also create a structural downward bias in the reported Rate Of Unemployment. That means a low Rate Of Unemployment may not reflect what is happening in the “real” world.

So what else does the BLS data tell us about unemployment?

If we examine Table A-12 Alternative measures of labor underutilization, we find this little jewel: “U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers (not seasonally adjusted) was 7.9% in April of 2007 and 8.9% in April of 2008.

To quote the BLS: “Marginally attached workers are persons 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 recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. 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.”

And from the “Persons Not in the Labor Force” (Household Survey Data) page: “About 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force in April. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks pre-ceding the survey . Among the marginally attached, there were 412,000 discouraged workers in April, about the same as a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them. The other 1.0 million persons classified as marginally attached to the labor force in April cited reasons such as school attendance or family responsibilities.” (Emphasis is mine. Ron)

So. If we examine the BLS data and add up the number of self employed persons who are not working, the number of persons who are working part time because they can not find a permanent full time job, and the number of persons the BLS classifies as unemployed, the total number of people who are either unemployed or underemployed equals 12,395,000 workers.

If we are willing to accept this broader definition of unemployment pain,

then the “real” rate of unemployment is 8.1%.


Conclusion

It would appear an 8.1% rate of unemployment (or underemployment) is far more consistent with the information we have heard or seen in the media, and certainly more sensitive to the economic pain of this recession. It should not be a surprise if this figure exceeds 12% before this business cycle is over. Not only will the ranks of the unemployed increase, but there will also be a sharp increase in the number of persons who are discouraged because they can not find work, or are working in part time jobs because they can not find permanent employment. All three conditions are detrimental to the economy, the community, the security of the family, and the self worth of the individual. They also promise to strain the viability of our political institutions.

And that's the real story on unemployment.

Ronald R. Cooke
The Cultural Economist
Author:  Detensive Nation
www.tce.name

Cultural economics is the study of how we interact with economic events and conditions. Culture, in this sense, includes our political systems, religious beliefs, psychology, history, customs, arts, sciences, and education. The term "Economics" refers to the extent and process of how we employ capital, labor and materials. If human existence is dynamic, then economics – as a science – must be able to characterize the interaction of culture and economics in contemporaneous terms.

Ronald R Cooke Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

roobah
06 Oct 08, 23:07
working or unemployed ?

Just because someones' benefits expire, does not mean they are working or unemployed.

With this in consideration, the number is as high now as it was during the depression.


recycle
09 Oct 08, 15:54
Unemployment Clarification

Can you clarify this quote?

"Despite these data points from the BLS report, the BLS claims the Unemployment Rate has increased from only 4.30% in April 2007, to a negligible 4.76% in April of 2008. Does this create a credibility problem?"

By your own numbers:

"Total unemployment increased by 11.6% from 6,532,000 persons in April of 2007 to 7,287,000 persons in April of 2008."

The BLS appears to be right.


Mark M.
12 Oct 08, 00:08
umemployment

I do not believe the unemployment records the goverment gives us.They say its only 6%,I believe its about 24%.They do not count people who run out of the benfits given.Our counrty is driven by a housing market.I dont think the realitors or goverment want you to know the real numbers of losses in the housing market.We make nothing in any kind of numbers.The number one export is recycibles,copper,steel scrap ect.,all sent to China.Lets get real,we have no econmy to build on.A deppression,which is already here,will take 5 to ten years,maybe longer.We have no real savings,we are in real trouble my friends.Gods Speed


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules