As most Americans are probably aware, President Barack Obama’s re-election chances are largely dependent on the success of the economy between now and next November. Thus, last week’s Bureau of Labor Statistics (BLS) report that the unemployment rate had dropped to 8.3 percent and total non-farm payroll employment rose by 243,000 was great news for the administration. Yet to put it as charitably as possible, the BLS has done a rather remarkable job of “massaging” the numbers. In short, any unemployment rate can be lowered when the number of people counted as unemployed is dramatically reduced.
First, it should be noted that all BLS figures are estimates, extrapolated from a survey of only .05% of households. Then there is the BLS interpretation of the word “unemployed,” itself. The agency defines it as people who “do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.” If a jobless American does not meet these particular criteria? The BLS contends that he or she is “not in the labor force.”
This is a critical distinction because the unemployment rate is calculated only as a percentage of those who are in the labor force. If fewer Americans are counted as part of that labor force, the unemployment rate goes down, even as the “non-participants” remain jobless. In October 1988, the labor force participation rate hit 66 percent. It remained there through 1992, briefly topping 67 percent during the dot.com boom years of the Clinton administration, and stayed above 66 percent for almost all of George W. Bush’s eight years.
Between Barack Obama’s election and his first year in office, the rate dropped from 65.8 percent to 64.6 percent. At the end of January, when the BLS was conjuring up its latest jobless number, the labor participation rate dropped to 63.7 percent. That number represents a 30-year low. The raw numbers, however, tell the real story. Since 2008, approximately 8.8 million more people have been classified as “not in the labor force,” including 2.6 million more than one year ago.
There is an ideological argument occurring as to what these numbers represent, especially with respect to the month of January. Those on the right contend that, based on the statistics, 1.2 million people dropped out of the labor force in a single month. Those on the left contend that the numbers represent an increase in the overall population reflected in the 2010 Census, and that years of changes in the Household Survey to measures that have taken place during that time period are incorporated into one month for simplicity’s sake. Who’s right? Time magazine trumpets the “good” news, citing BLS employee Mary Bowler who said that “the steep jump in the number of those not seeking work came entirely from the census adjustment, which added 1.25 million people to that group. If you take out the census adjustment, the labor force numbers stayed essentially the same, as reflected by the labor force participation rate of 63.7%.”
The increase comes entirely from the census adjustment? Not a single one of those extra 1.25 million people “found” by the Census Bureau needs a job? Note the one figure that is not in dispute by either side: the 63.7 percent of people in the labor force, which once again begets the other undisputed figure, namely the 30-year low in workforce participation. Yet Ms. Bowler remains unperturbed, contending “the spike in the number of people no longer looking for work is entirely the result of some people at the Labor Department adding numbers to their spread sheets rather than an actual observed shift anywhere in the real economy.”
Inadvertently, Ms. Bowler has put her finger on a serious problem with BLS calculations, namely they are in fact numbers added to spread sheets rather than actual observed shifts in the economy–which brings us to the figure of 243,000 jobs the BLS contends were created in the month of January. That number was based on something the BLS calls “seasonal adjustments.” The BLS notes that “seasonal fluctuations in the number of employed and unemployed persons reflect not only the normal seasonal weather patterns that tend to be repeated year after year, but also the hiring (and layoff) patterns that accompany regular events such as the winter holiday season and the summer vacation season.” Thus, the numbers are “adjusted” to smooth out the various up-and-downs in employment that occur throughout the entire year.