The Truth Behind the December Jobless Numbers

Jack Rasmus

A glimpse of the future?

On Fri­day, Jan­u­ary 6, the U.S. Labor Depart­ment once again released its fig­ures for the Decem­ber jobs sit­u­a­tion. Once again, after a crescen­do of hype build up in the busi­ness press that the forth­com­ing num­bers would show a clear recov­ery in the jobs mar­ket, the num­bers dis­ap­point­ed’.

The Labor Department’s Cur­rent Estab­lish­ment Sur­vey’ (CES), based on report­ing of job hir­ing and lay­offs by more than 400,000 U.S. com­pa­nies, showed only 103,000 jobs added in Decem­ber. For net job growth in the econ­o­my, a min­i­mum of 150,000 jobs needs to be added each month. So the trend con­tin­ues toward job loss despite the media hype.

But wait a minute, those who argue the econ­o­my and jobs mar­ket is in recov­ery say, anoth­er Labor Depart­ment sur­vey, the Cur­rent Pop­u­la­tion Sur­vey’ (CPS) shows that jobs grew by 297,000 in Decem­ber and the unem­ploy­ment rate fell from 9.8% to 9.4%. Doesn’t that show a turnaround?

Sift­ing through the surveys

To under­stand the con­tra­dic­tion between these two sur­veys, it is nec­es­sary to under­stand how they are put togeth­er and the dubi­ous assump­tions they make, espe­cial­ly in the case of the CPS that deter­mines the report­ed unem­ploy­ment rate (the CES only shows the actu­al num­ber of jobs gained or lost).

First, unlike the CES, which is a report’ by busi­ness­es direct­ly to the Labor Depart­ment on how many jobs they added or reduced, the CPS is obtained by 5060,000 phone inter­views of house­holds each month. The unem­ploy­ment rate is obtained by these inter­views.

How­ev­er, the CPS method is not very reli­able. Here are sev­er­al rea­sons why.

To be con­sid­ered offi­cial­ly unem­ployed,’ the inter­vie­wee must indi­cate he or she is out of work but has looked for work some­time in the pre­vi­ous four weeks. This offi­cial unem­ploy­ment rate — called the U‑3’ rate — in Decem­ber was 9.4%, based on a total of 14.5 mil­lion offi­cial­ly unem­ployed. It’s what the press reports and is an extreme under­es­ti­ma­tion of the num­ber of job­less.

If you haven’t active­ly looked in the pre­vi­ous four weeks,’ you are not con­sid­ered unem­ployed. You may be just as job­less as any­one else, may want to work as much as any­one else, and maybe would accept a job if offered, but you are not con­sid­ered unem­ployed by the Labor Depart­ment. You are instead called mar­gin­al­ly attached.’ So the fact that you don’t have a job doesn’t mean you’re unem­ployed, accord­ing to the gov­ern­ment. There are offi­cial­ly about 2.6 mil­lion of mar­gin­al­ly attached’ work­ers. But the num­ber is actu­al­ly much high­er, around 4 mil­lion. Adding these 4 mil­lion to the 14.5 mil­lion equals what is called the U‑5 unem­ploy­ment rate. That fig­ure doesn’t get report­ed by the press. But there’s more.

Anoth­er major prob­lem with the CPS is that the inter­vie­wee on the phone is asked how many hours she or he worked in the pre­vi­ous week. If the answer is even one hour, you are deemed employed. There were 8.9 mil­lion of these work­ers, up from only 2 mil­lion when the cur­rent reces­sion began back in 2007. When added to the U‑3 and U‑5, their num­bers give us the U‑6’ unem­ploy­ment rate, which is also almost always ignored by the media report­ing on the job­less sit­u­a­tion. So now we have 14.5 mil­lion, plus 4 mil­lion plus 4 mil­lion more, or about 22.5 mil­lion.

But this is still not the entire pic­ture. The house­hold phone sur­vey approach by the CPS is strong­ly biased against work­ers who don’t have phones to par­tic­i­pate in the sur­veys, or who can’t be reached by phone, or who oth­er­wise are reluc­tant to par­tic­i­pate in phone inter­views with the US gov­ern­ment. For exam­ple, there are about 8 – 10 mil­lion undoc­u­ment­ed work­ers in the US. They have undoubt­ed­ly been impact­ed worse than the major­i­ty of work­ers in terms of suf­fer­ing from unem­ploy­ment. They do not par­tic­i­pate in the phone sur­vey. There are addi­tion­al­ly mil­lions more US work­ers who are itin­er­ant and trav­el for jobs on a reg­u­lar basis. They are not ade­quate­ly sam­pled in the phone sur­vey either because they don’t have a per­ma­nent res­i­dence to be called. And there are mil­lions of inner city youth work­ing off the books,’ as they say, who nei­ther receive calls nor would answer if they did. They are a big part of the under­ground econ­o­my in the US that makes up about an unre­port­ed 10% of annu­al $14 tril­lion out­put in the US. We’re talk­ing about tens of mil­lions of work­ers who are dis­pro­por­tion­ate­ly job­less in reces­sions com­pared to the rest but who are not count­ed in the total job­less or unem­ploy­ment rate.

And then there’s the grow­ing ranks of job­less who have been sign­ing up for long term dis­abil­i­ty ben­e­fits in order to avoid the pal­try unem­ploy­ment ben­e­fits or their con­tin­ued uncer­tain­ty. That num­ber has grown by at least a mil­lion, to 3 mil­lion, since the reces­sion began.

So the total num­ber of unem­ployed in the Unit­ed States is real­ly around 27 mil­lion — not the offi­cial 14.5 mil­lion report­ed in the high­ly con­ser­v­a­tive U‑3 unem­ploy­ment rate of the CPS and not even the 22.5 mil­lion in the Labor Department’s often unmen­tioned U‑6 rate.

The dan­gers of sticky sta­tis­tics

But even the U‑3 (and U‑6) total unem­ployed rate is gross­ly under­es­ti­mat­ed. These rates are sta­tis­tics.” That is, not true num­bers, but data upon which sta­tis­ti­cal manip­u­la­tions have been per­formed. And that means a lot of lee­way for manip­u­lat­ing the true num­bers. One of the gross­est manip­u­la­tions of the num­bers is the result of what is called the New Busi­ness Birth Death Mod­el’ (NBDM).

This is an assump­tion of how many new busi­ness­es are formed each month and the num­ber of new employ­ees hired as a result of that new busi­ness for­ma­tion. It is not a true record of for­ma­tions, but an assump­tion of what is hap­pen­ing based on his­tor­i­cal aver­ages. If in the past ten years busi­ness­es start­ed up 200,000 new busi­ness­es every Decem­ber, then at least 200,000 new jobs are assumed to be added to the labor force. So if the actu­al CPS sur­vey of house­holds esti­mates 100,000 actu­al job loss­es that month, then the NBDM assumed growth of 200,000 will mean a net increase of 100,000 jobs — not a truer loss of 100,000 jobs.

This game goes on reg­u­lar­ly with the NBDM every month. It is why in the spring the job num­bers always are false­ly inflat­ed. Last spring, for exam­ple, it was assumed that 225,000 new jobs were added in April and May due sole­ly to the assump­tions of the NBDM.

The CPS sur­vey of the offi­cial tal­ly of job­less, and the offi­cial unem­ploy­ment rate, is thus rife with these kinds of sta­tis­ti­cal games. It should there­fore be tak­en with a grain of salt.

Unearthing the real sto­ry on unem­ploy­ment

It is impor­tant to look to oth­er indi­ca­tors of the health of the job mar­ket every month. Such as new job­less claims (still con­sis­tent­ly over 400,000 a month, which means jobs are con­tin­u­ing to dis­ap­pear). Such as how many of the 1 mil­lion pri­vate sec­tor jobs alleged­ly cre­at­ed in 2010 were mere­ly low paid, no ben­e­fit, part-time and tem­po­rary jobs (of which about two-thirds of the 1 mil­lion were). Such as how many work­ers have been job­less long term and how long (now at record lev­els and still ris­ing). Such as how many job open­ings there are in rela­tion to how many work­ers look­ing for work (still at a record of rough­ly 5 work­ers look­ing for every job avail­able). Such as the ratio of the num­ber of jobs to the total pop­u­la­tion (now at its low­est since 1945).

And: How long is it esti­mat­ed it will take just to get back the jobs that were lost since 2007. This is per­haps one of the best true indi­ca­tors of the depth of the cur­rent jobs cri­sis.

Even if a net of 250,000 jobs were added every month (not the cur­rent 103,000), it would take about six years to recov­er the jobs lost, assum­ing the con­ser­v­a­tive U‑3 lev­el of 14.5 mil­lion. Assum­ing the more accu­rate U‑6 lev­el of 22.5 mil­lion job­less, it would take twice that, with jobs not ful­ly recov­ered from 2007 lev­els until 2022. And if a more real­is­tic U‑9’ rate (a rate that doesn’t exist yet) were the mea­sure, not until after 2025. That’s how deep and seri­ous the cur­rent unem­ploy­ment sit­u­a­tion tru­ly is today.

And that’s why a mas­sive direct gov­ern­ment job cre­ation pro­gram will be nec­es­sary at some point soon to cor­rect the worst jobs cri­sis since 1934. Pri­vate com­pa­nies today sit on $2 tril­lion in cash and aren’t invest­ing (in the U.S. at least) to cre­ate jobs. And the Oba­ma gov­ern­ment just agreed to give them hun­dreds of bil­lions more in the Bush tax cuts exten­sion. Now they can hoard $2.2 tril­lion and not cre­ate jobs. And the new­ly uni­fied cor­po­rate-polit­i­cal elite are about to cut spend­ing and lay­off mil­lions more in the pub­lic sec­tor, instead of hir­ing more.

But today’s des­per­ate need for a mas­sive gov­ern­ment direct job cre­ation pro­gram is anoth­er sto­ry, for anoth­er time.

Jack Ras­mus is author of the 2010 book EPIC RECES­SION: PRE­LUDE TO GLOB­AL DEPRES­SION (Plu­to Press-Pal­grave Macmil­lan), and the forth­com­ing 2011 book, OBAMA’s ECON­O­MY: WHY RECOV­ERY FAILED. WHAT’S NEXT?

Jack Ras­mus, pro­fes­sor of eco­nom­ics and polit­i­cal econ­o­my at San­ta Clara Uni­ver­si­ty and St. Marys Col­lege, is author of Epic Reces­sion: Pre­lude to Glob­al Depres­sion, and The War at Home: The Cor­po­rate Offen­sive From Ronald Rea­gan to George W. Bush. His forth­com­ing book (2011) is Obama’s Econ­o­my: Why Recov­ery Failed. What’s Next? Ras­mus has pub­lished numer­ous arti­cles in Z mag­a­zine, Cri­tique, Amand­la, Against the Cur­rent, the Dis­patch­er and oth­er periodicals.
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