Unemployment rates

The unemployment rate comes under fire, mainly for number of people it doesn’t count. It doesn’t count discouraged workers, those who having failed to find work, have stopped looking. It doesn’t count underemployment, those who cannot find work at their skill level. The Bureau of Labor Statistics (BLS) explains:

The basic concepts involved in identifying the employed and unemployed are quite simple:

  • People with jobs are employed.
  • People who are jobless, looking for jobs, and available for work are unemployed.
  • People who are neither employed nor unemployed are not in the labor force.

The survey is designed so that each person age 16 and over who is not in an institution such as a prison or mental hospital or on active duty in the Armed Forces is counted and classified in only one group. The sum of the employed and the unemployed constitutes the civilian labor force. Persons not in the labor force combined with those in the civilian labor force constitute the civilian noninstitutional population 16 years of age and over. Under these concepts, most people are quite easily classified.

Contrary to popular belief, the BLS says it doesn’t use the “number of persons filing claims for unemployment insurance (UI) benefits under State or Federal Government programs…. [S]ome people are still jobless when their benefits run out, and many more are not eligible at all or delay or never apply for benefits. So, quite clearly, UI information cannot be used as a source for complete information on the number of unemployed.”

Unfortunately, the Census Bureau provides statistics of the civilian noninstitutional population broken down by age–needed to isolate the working age population–only back through the 1990s. That makes it harder to audit the unemployment rate.

My approach to the problem was that whenever the rate of increase in the number of jobs–as measured by the total number employed–drops below the rate of increase in population, there is some real pain out there. I can’t use the labor force as defined above–it doesn’t count discouraged workers. So here’s what I came up with:

It shows a decent inverse correlation between the unemployment rate and the rate of increase of jobs. But it also shows how the unemployment rate understates the problem. For whenever the rate of increase of jobs drops below zero, that means there are fewer jobs than there were before, even with a fairly steady growth in population. This has happened three times since 1980, most recently from 2001-2003. And it is only this year that we may be seeing a rate of increase in the number of jobs that exceeds the rate of increase in population.

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