January 7, 2011
The December Unemployment Rate came in at 9.4% today, and the Obama administration and its fawning media are doing public cartwheels. Certainly a 9.4% jobless rate looks like an improvement over last month’s 9.8%, but with apologies to Mark Twain, there are three types of lies: lies, damn lies and job statistics.
The Labor Department reported that the economy created 103,000 new jobs last month. But economists say that roughly 125,000 jobs must be added each month just to keep up with normal population growth. So how can it be that the jobless rate actually declined from November’s 9.8% rate?
The answer lies in the way the unemployment rate is determined. The overall jobless rate is calculated based on the number of unemployed people who are available to work and have actively looked for a job during the prior four weeks, divided by the number of people in the workforce. So, a decrease in the numerator causes the jobless rate to go down. But so does a decrease in the denominator.
The Labor Department reported that 260,000 Americans stopped looking for work last month. This includes discouraged workers who, not finding employment or having reached the end of their 99 weeks of unemployment benefits, have left the workforce. These workers who are no longer participating in the labor market are subtracted from the denominator used to calculate the jobless rate. The result was a relatively modest 103,000 increase in December’s payroll numbers but a four percentage point decline in the jobless rate. Unfortunately, much of this percentage (roughly two-thirds) is due not to an increase in employment, but rather to a reduction in worker participation in the labor market.
A more accurate measure of the jobless rate is the Labor Department’s “total unemployment rate”, which includes “marginally attached” employees — that is, those workers who are working part-time but prefer full-time employment plus those who are no longer looking for work. December’s total unemployment rate came in at a brutal 16.7%, slightly improved over November’s 17% rate.
Perversely, if 500,000 Americans were suddenly to give up and leave the workforce, the month’s unemployment rate would actually improve. Would the administration look to take credit for a decreased jobless rate in the face of such a mass job exodus? Certainly, no politicians could be so cynical. But for an administration that has attributed voter dissatisfaction with its overhaul of our nation’s healthcare system to its own failure to communicate how good it really is, we can easily imagine that this same administration might characterize such a statistical improvement in the employment figures as a signal that its job-stifling policies are working.
No matter the political spin on the December Unemployment Rate, one thing is certain. The jobless numbers do not account for the desperation, heartache and family despair experienced by those who are out of work.