My Quiet Life My Quiet Life

America: Workin Hard or Hardly Workin?

From the New York Times:

The unemployment rate fell to 5.7 percent, the lowest in over a year and down from 5.9 percent in November.

Good news, right? Hardly:

But this was mainly because 309,000 people dropped out of the work force.

Some have chosen to conveniently ignore that little facet, choosing to present this as good news. But it’s anything but.

Many people, myself included, are often confused by the varying and sometimes contradictory labor market indicators of the economy’s strength. Fortunately the ever-illuminating billmon has a great breakdown of how different labor statistics are formed, and what they mean:

Payroll growth is calculated from a survey of employers; the unemployment rate comes from a survey of households. The rate is based on the number of workers who say they are currently unemployed but “actively” looking for work, divided by the civilian labor force – workers who have jobs, plus those who are “actively” searching for one.

If workers stop “actively” looking for work, they become what the BLS calls “marginally attached workers,” and are not counted as part of the civilian labor force. They’re not even counted as unemployed members of the labor force. They may want a job, they may need a job, but if they didn’t go out and try to find a job in the four weeks leading up to the household survey, they’re not included in the labor force.

OK. According to the household survey, the number of workers who say they have jobs, and the number who say they are actively looking for work both fell in December. But the civilian labor force shrank even more, because of all those “marginally attached” workers who gave up looking for jobs. This pushed the unemployment rate down.

Further in the comments, a question is asked that highlights the foolishness of blindly relying on unemployment claims (or any one number) as a sole indicator:

Am I wrong in assuming that in a catastrophic situation where there were no jobs and almost everyone was unemployed and in a state of utter hopelessness, the asymptotic values are 0 jobs lost (and created) and an unemployment rate of 0%?

I think I know some politicians who would hail that as good news.

Posted by Gerry at January 9, 2004 02:01 PM

You’ve got the general idea: in theory, the unemployment rate (as calculated by the BLS) could fall to zero in the middle of an economic collapse, if EVERYBODY gave up looking for work.

But the jobs lost/created number comes from the payroll survey. Since jobs are always being created and destroyed, that number would have to be either positive or negative – unless payrolls all fell to zero and stayed there.

But that’s an issue for Shrub’s second term.

Posted by Billmon at January 9, 2004 02:08 PM

This tends to make it look like Krugman has been right the whole time, about discouraged workers (much to Donald Luskin’s chagrin).

So what does this news mean? I think kos put it best:

This is just ghastly. Let the administration trumpet the nation’s GDP growth, because it just points to one unescapable fact – someone is making out well in this economy. But it sure ain’t the American worker.