Misunderstanding Unemployment Data

A friend quite sarcastically writes:  

“its a disaster that only 94.8% of all people looking for a job in this country can find one”   

Um, no.

The number referenced is the percentage of people working, relative to the total labor pool. The 5.2% unemployment rate does not represent, as suggested below, a percentage of unsuccessful job hunters.

Here’s how to track this: Go to The Street.com’s free Economic Calendar.  Most people get the Unemployment Rate, and stop there. But as I mentioned previously, the headline number can be misleading. There are severalother measures you can review. If you look at the Augmented unemployment rate — created by Greenspan to give a fuller read on the Economy — its over 8%. And, if you use BLS’s U-6 — the broadest measure of Unemployment, which adds back in discouraged workers — we’re closer to 9.3%.

Here’s another interesting data point: Look at the Pool of available workers — its been going down since mid-2002, despite the continually rising total U.S. population. Curious, huh?

This helps explain why the Unemployment rate has been going down — its not because more people are getting jobs; Rather, its because the labor pool keeps shrinking.

Remember, a percentage is a fraction with 100 understood as the denominator. Unemployment Rate is 100 minus the Employment Rate % (workers/labor pool).

There are only two ways to make the unemployment percentage smaller: Make the numerator bigger (more people getting jobs) or make the denominator smaller (less people in the labor force). The unemployment rate has been going down due to the NILFs: People NOT IN the LABOR FORCE.

This has very significant ramifications for the broader economy, as well as the market. Investors are advised that they ignore the fine print at their own financial peril . . . 

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  1. Byrne commented on Feb 6

    I might be misreading the data, but it looks to me like the relationship between these two unemployment rates is pretty stable — at least the current difference is exactly where it was in 1995. So while it’s great to be aware of these rates and what they say about the economy, they don’t say anything now that they didn’t a decade ago.

  2. chris commented on Feb 7

    Barry, if you want to add blank lines to a post, you can use the html line brake tag: <BR>

    It will let you add as many blank lines, as you want.

    So if you want 4 blank lines, put <BR><BR><BR><BR> into your post.

  3. Shane commented on Feb 7


    Do you happen to know the average augmented unemployment rate?

  4. Orin Black commented on Feb 10

    Tell me again why it is bad when people leave the job market?
    Unemployment in my neighborhood is zero.
    The neigborhood is deserted all day. That is good?
    Actually what amazes me is the number of people who are working with all the incredible number of immigrants arriving at what seems to be a faster and faster pace.
    Where I work we have trouble finding qualified people whenever there is an opening, which happens to be now.
    I really don’t know of anyone who isn’t working that wants to work.
    I think we actually have very little unemployment, we just have a lot of people who aren’t trained to do anything.

  5. JohnK commented on Feb 11

    In reference to Orin Black:

    It always amazes me that people take their personal observations and extend them into a general view of what’s going on in the country. The fact that your neighborhood is deserted all day has nothing to do with the “statistic” about the national unemployment rate. If we could observe unemployment from our front windows, it would not require the reams of people to crunch numbers for weeks at a time to compile the unemployment figure. The comment on untrained people is another unfounded opinion offered as useful information.

  6. SSapo commented on Feb 11

    The unemployment rate given to the public bu the DOL is a lie! It is based on #s of people filing PAYABLE unemployment claims – it does not take into account the people who have disallowed claims, insufficient wages to open a payable claim. Also, they do not take into account those who HAVEN’T filed or have just given up!! The old adage “Figures don’t lie, but liars figure” comes to mind……….

  7. Tapart News Editor commented on May 24

    The unemployment rates are fabricated especially if compared to the way the data was gathered in the past. At one time most of the reporting was based on those reporting to the unemployment offices. Now that only about 38% of all workers qualify for unemployment insurance, this method is not used. Instead the Bureau of Labor Statistics polls a number of households per month. If the person has not looked for a job in the past month, they are considered employed.
    In the past primarily only full time jobs with benefits were the basis of unemployment reporting. Today even a person making only a hundred dollars a month is considered employed. And if someone is working in a family business or on a family farm with no income at all while seeking a job , they are still considered employed.
    Reportedly only about 88 million workers now have full time employment. This means there are about a 100 millions workers, working only part time or missing in action from any kind of reporting. Even the Bureau of Labor statistics admitted about 4 million workers have not been found.
    The missing in action figure is actually much larger than this. A Canadian Forum says the Canada would only have about 1% unemployment if they did their reporting the way the USA does.
    The term underemployment was used in recent years to note all those who have some kind of job but not one that pays the bills. This term is no longer used that much and many of the working poor are homeless while being reported as employed.
    The USA has gone through the most massive dislocation of workers in its history with the government and the media in denial about it . Many have drifted into a silent depression with one indicator being the payroll tax. Reportedly, 60 to 70 % of all workers pay more in payroll tax than they do in income tax which means a vast working poor class exists.
    The USA has one of the largest population of children living in poverty in the world while unemployment reporting is kept low.
    For more information, see Tapsearch com Tapart News and Art that Talks at http://www.tapsearch.com/tapartnews/ http://tapsnewstory.filetap.com http://pages.zdnet.com/arklineart/tapin http://arklineart.fotopages.com
    http://www.graphicsforums.com/public/list.asp?id=1250 or search on Google, Yahoo etc under Tapart News for more references.

  8. Orin Black commented on Feb 25

    True, I am not in a position to crank thousands of numbers to come up with some textbook percentage which you seem to want to hang your hat on.
    However I have lived in randomly selected neighborhoods in 8 different states in different sections of the US and I am in a job in which I interact with hundreds of business men and women on a continuous basis. They can’t find qualified people for many types of positions from mechanics, to accounting staff, to sales people, to whatever. Since the 60’s and 70’s it has gotten progressively worse. In some states even when they find people, it is difficult to get them to show up for work on a regular basis.
    You go ahead and hang your hat on some statistical methods the governments uses to arrive at their make believe numbers, but I visit and talk on the phone to hundreds of small and large businessmen continually and I think I am getting good information.

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