Tuesday, September 11, 2007

The Denominator of "Unemployment" Percentage

There are two ways to keep the (reported) unemployment percentage low.

First way: employ more people. (The numerator)

Second way: reduce the 'civilian labor pool." (The denominator.)

The 4.6% unemployment rate of August has to do with a reduction in the denominator, folks.

...We have referred to this number in the past as NILF -- Not-in-Labor-Force.

And that is precisely what happened to the Unemployment Rate in this month's NFP. The
BLS Household Survey (Table A-1. Employment status of the civilian population by sex and age) showed that in one month, the US labor force decline[d] 1,379,000. (July 2007 = 154,871,000; August 2007 = 153,493,000).

That's an awful lot of people who suddenly decided to "retire." Similar numbers can be seen in the July 2007 "Not in labor force" -- it ticked up from 77,087,000 to August 78,717,000). If it wasn't for this sudden drop in the labor force, the Employment rate would have been = 0.945341606886.

In other words, a sudden and unexplained disappearance of a million plus workers from the labor pool managed to keep the Unemployment Rate almost a full percentage point below where it is more likely to be in that artificial construct called reality.

We're not so sure of "unexplained;" home-construction has dropped significantly, and a lot of labor was provided by illegals--meaning that they've returned to Mexico.

But then, it's still not quite the same as adding jobs--the numerator--is it?

Ms. Chao (Sec/Labor) is well-connected. That may be the limit of her abilities.

HT: The Big Picture

1 comment:

RAG said...

This is nothing more than statistical manipulation.

Same with the crime rate. The eight categories used to measure it were devised in the 1920's. Many of those categories don't apply today, i.e., where does child abuse fit? Consequently, police, prosecutors and courts are busier but the crime rate goes down because many of the crimes committed today don't fit into the eight categories of the 1920's.

That said, when was the last time you read a journalist writing about how bogus the crime rate is?