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Unemployment statistics for dummies

December 16, 2011

This past Monday, Debbie Wasserman Schultz, chairwoman of the Democratic National Committee, said something about unemployment which was frighteningly disconnected from reality. For her that's kind of a regular occurrence, but this was even worse than usual. What she said was that unemployment has gone down since Barack Obama became president.

She was on Fox News, and host Gretchen Carlson prompted her with the observation that, "Unemployment has gone up precipitously since he [Obama] took office."

"That is simply not true," replied Washerwo... er, Wasserman Schultz. "In fact, unemployment has now dropped below 9%. It's continuing to drop."

Given the source, we could dismiss this as the ramblings of a deeply stupid woman, but Democrats are making Obama's performance on the jobs issue the centerpiece of their 2012 strategy, which moves this out of the realm of stupidity into the realm of dishonesty. Last month it was former Speaker of the House Nancy Pelosi (another mental giant) saying, "I think it’s really important to know that President Obama was a job creator from day one."

Huh?

On Sunday's 60 Minutes, the president himself bragged that unemployment numbers were improving, and the rate might get down to 8% by Election Day. "It's possible," he said.

So what about that? Is the unemployment rate coming down? Is it headed for 8%? Let's look at some charts. The first one is the U-3 unemployment rate – the "official" unemployment rate – taken directly from U.S. Bureau of Labor Statistics (BLS) data:



Clearly, unemployment according to the BLS is not lower than when Obama became president. Wussy... er, Wasserman Schultz knows this now, because the media spent the last four days mocking her relentlessly for being so ignorant. But things are much worse than the U-3 chart implies.

The problem with the official unemployment rate involves two kinds of dishonesty (or tricks) – one kind that's inherent and a brand new kind that's been added by the Obama administration. The inherent dishonesty is that U-3 only counts people actively seeking a job, ignoring millions of discouraged people who gave up, part-timers who can't find full-time jobs, and involuntary retirees. Wise people look at the U-6 unemployment rate instead:



Obviously the U-6 rate – closer to something we're comfortable calling the real unemployment rate – is much higher but tells the same story: unemployment has increased since Obama became president. The increase is a full two percentage points, from 13.6% in December of 2008 to 15.6% now.

Here's the two rates on the same chart:



The BLS description for U-3 is, "Total unemployed, as a percent of the civilian labor force (official unemployment rate)." The description for U-6 is, "Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force." Although the media insists upon reporting U-3 to the American public every month, nobody denies that U-6 is a more comprehensive measure of unemployment. Unfortunately, because of the aforementioned second dishonesty perpetrated by the Obama administration, the U-6 rate is artificially lower than it should be, too.

The Obama trick:

The unemployment rates, all of them, are calculated from a monthly survey called the Current Population Survey. Simply put, they call American households and ask people if they're working, and if not, why not. The aspect of this survey that most analysts miss, and the government hopes none of us ever figure out, is that they count employed people, not unemployed people. At first blush, that seems like a distinction without a difference but it matters. The government under Barack Obama is running a scam to produce lower unemployment rates, and the scam is based upon the way that survey is conducted. Keep reading.

Once the government stastiticians have extrapolated from their survey how many Americans are employed, they subtract that number from the total labor force to get the number of unemployed. Then they divide the number of unemployed by the labor force to produce an unemployment rate. The simple equation looks like this:



You don't have to be an algebra genius to understand that equation. The higher the number of unemployed, the higher the unemployment rate. Where the Obama administration is squirreling around and scamming us is with the bottom number on the left side, the total labor force. The smaller that number is, the lower the unemployment rate, BUT (here's where the dishonest lying bastards are tricking the public) before they get to the equation, remember, they calculated the number of unemployed by subtracting the employed from the total labor force. So if the labor force number is artificially low, the number of unemployed will be artificially low also. The rate will slide back up a bit in the equation because the labor force is low, but not nearly as much as it was ratcheted down in the earlier step.

Lower number in the labor force, lower unemployment rate. That's the trick.

Here's the chart of BLS numbers for "Civilian labor force" since 1990 – see if you notice anything peculiar:



The chart shows a steady rise all the way through 2008, whereupon Barack Obama is sworn in as president and suddenly the country stops adding workers. The BLS doesn't have numbers going back to 1776, but it would be safe to say this is an historical first, that the labor force of the United States of America stopped growing.

Here's the same chart with a trendline to show the sudden divergence from the usual pattern of steady growth:



And here's a close-up, starting with 2005:



According to the BLS, we have 404,000 fewer people in the labor force than we did when Obama became president three years ago. If you believe that, there's a bridge to Gravina Island for sale.

Growth in the labor force is a natural result of growth in the overall population, so did the overall population stop growing? According to the Census Bureau, the average annual growth in population between 2000 and 2010 was 2,732,363 and the average annual growth between 2010 and 2020 will be 2,705,946.

So no, the population hasn't stopped growing. The BLS is callously lying to keep the public from knowing how dire the unemployment numbers are... because they know if the truth hits newspaper headlines, Obama and the Democrats won't have a chance in next year's elections.

Sit down, because this next is scary. Given the steady predictable trend in population growth, we can estimate that 6,000,000 people (at least) have been erased from the labor force by the BLS. If we add them back and calculate, the official U-3 unemployment rate for November is 12.3% rather than the 8.6% which Barack Obama, Nancy Pelosi, and Worthless... er, Wasserman Schultz were trumpeting.

And the real unemployment rate, U-6, is 19.1%. To put that in perspective, the average rate of unemployment during the Great Depression, 1931 through 1940, was 18.7%.

That's how bad things are. That's what they're hiding.


From Reno, Nevada, USA       

March 9, 2012 - Wow! What an eye opener. I was making the same mistake as others in figuring that by reducing the denominator the rate should be going up and not down. But now that I understand how things are "really calculated" it changes everything. Thank you for such an informative and well written article. Keep up the good work! - M.B., Oklahoma

December 20, 2011 - The analysis is a quite fine exposition of some of the tricks played by government reporting agencies concerning unemployment stats. The other unmentioned item is that employment statistics should rightly be adjusted (or reported) with reference to the population. So while the total number employed is level, population has grown, so the civilian participation rate is falling like a rock. The one glaring error in your analysis, though, is that the unemployment rate rises as the labor force declines all else being equal. The labor force is in the denominator so the same # of unemployed over a smaller labor force = higher unemployment rate. (10/100 is less than 10/50) - John H., New York
J.P. replies: You seem like an intelligent man, just the kind of reader I'm trying to attract, but you've fallen for the very trick the column attempts to describe. In the basic equation for calculating the rate, yes, the rate rises as the labor force falls, but because the Current Population Survey counts employed and then arrives at the number of unemployed by subtracting, the number of unemployed goes down on a one-for-one basis when they under-represent the labor force. End result: unemployment rate falls when labor force falls. Simplified example: Labor force of 10, 8 employed people in the survey, unemployment rate = (10-8)/10 = 20%... but if they undercount the labor force by one the equation becomes (9-8)/9 = 11%. Having the 9 as the denominator raised the rate by 1%, but lowering the labor force by 1 lowered the rate by 10%. See the trick they're playing? Even a smart guy like you was fooled, even after reading a column that explained it. So what are the chances that the electorate as a whole will wise up? It's depressing.

December 16, 2011 - This is amazing Im going to post this to facebook thanks JP I live in a liberal town so its good to have a voice of reason. - Devin C., Washington

December 16, 2011 - The old saying was, "A recession is when your neighbor loses his job; a depression is when you lose yours." There's another old saying to go along with that one: "Figures can't lie, but liars can figure."
The tendentious, misleading use of statistics has been a thorn in the public's flesh since governments began collecting them, back in the Early Obscene period. Not many commentators have dared to delve deeply into critical factors such as the size of the labor force and the percent of Americans who've abanadoned all hope for full-time employment. Major kudos to you.
The great Thomas Sowell, in his masterpiece The Vision Of The Anointed, noted that "You can always create a fraction by putting one variable upstairs and another variable downstairs, but that does not establish any causal relationship between them, nor does the resulting quotient have any necessary relationship to anything in the real world." Along a similar line of thought, Sir Josiah Stamp once commented that "The government [is] extremely fond of amassing great quantities of statistics. These are raised to the nth degree, the cube roots are extracted, and the results are arranged into elaborate and impressive displays. What must be kept ever in mind, however, is that in every case, the figures are first put down by a village watchman, and he puts down anything he damn well pleases." But the construction and exploitation of such "statistics" is one of our aspiring tyrants' favorite methods for puffing themselves up at our expense -- or, when the occasion demands it, for fabricating a "crisis" with which to terrify us into surrendering still more of our freedom.
All of which has led us to a new saying: "A recession is when your neighbor loses his job; a depression is when you lose yours -- and a recovery is when Barack Hussein Obama loses his." - Francis W. Porretto, Connecticut



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