Wednesday, September 12, 2012

Two Ways to Spin Unemployment

Before I begin, let it be known that all statistics have been taken from the Bureau of Labor Statistics and the Bureau of Economic Analysis.

The latest jobs report came out last Friday and the numbers are pretty middling. But the headline numbers (number of jobs added, unemployment rate) aren't what concern me. What concerns me is the mathematical link between the employed and the unemployed.

The total number of adults in this country is about 243 million people. The total number of adults in this country who are part of the workforce (either employed or seeking work) is about 154 million people, or 63.5% of the adult population. Of that 154 million, 8.1% are unemployed. The rest are employed.

Going by those statistics alone, that means there are 12.3 employed adults for every unemployed adult. That doesn't seem like too bad of a statistic. But of course, that's not the whole story. If you rewind the clock back to January of 2008, the workforce was 66.2% of the adult population. The reason why it was higher back then was because more adults were looking for work. In a bad economy, if you give up looking for a job, the government doesn't count you as unemployed. They count you as out of the labor force (it's hard to see the difference, I know).

If you add all the millions of Americans who decided to leave (or not to join) the labor force and the new millions of Americans who just turned into adults who can't find a job, the "normalized" unemployment rate, going by early 2008 standards, is 12.1%. With that new number, there are now 8.3 working adults for every unemployed adult. Now things look decidedly more grim.

But wait, there's more. Because there's more than one way to count "employment" and its counterpart "unemployment", we have a new statistic to consider: the number of part time workers (who are considered "employed") that want to work full time but can't because they are unable to find full time work. They number 8 million strong, or roughly 5.6% of the employed population. So if we only consider full time workers, the full time unemployment rate (the BLS actually measures this, it's called the U-6 unemployment rate) judged by early 2008 standards is roughly 17%.

That means there are 5.9 full time workers for every unemployed person out there. Now things look downright bad. This illustrates how you can manipulate numbers to say what you want them to say, as long as you qualify your assumptions on how terms are defined. So let's define the first spin:
The "true" unemployment rate is above 15% of the workforce while the full time employment rate is just 55% of the adult population. This represents a disaster for the country economically, culturally, and socially.

Now some new statistics are needed for my second spin. So let's get to it.

US GDP at the end of 2008: 14.2 trillion
US GDP at the beginning of July 2012: 15.6 trillion

So here's spin number 2: 
In January of 2008, the employed population had 4 million more people than what it is now, and yet our real GDP today is 9.9% greater. What that means is we built 10% more stuff with 2.7% less workers. In economic terms, the economy has never been better. And if we are finally able to add new workers at the same employment rate back in January of 2008, our economy will absolutely soar. 

Together, both spins represent the most pessimistic and the most optimistic view of the economy. This is why ordinary people don't trust statistics. An intelligent person can manipulate the data (or add in new data sets to create a new analysis) to say whatever he or she wants to say.

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