ECON 101 of the Day: The Unemployment Rate
ECON 101 of the Day: When Trump (or any politician) claims that the official unemployment rate reported by the Department of Labor is “such a phony number,” “one of the biggest hoaxes in American modern politics” “totally fiction.” and “the biggest joke there is,” he is contextually wrong but is expressing a tiny kernel of accuracy.
First, let us come to terms that in a nation of millions of people, there will be people in various states of employment. Some will have just turned 16 and thus eligible for employment. Some will be 70 and up and also eligible for employment. There may be millions and millions of people in just those two age categories. So if they aren't working, aren't they unemployed? The answer is NO. Why?
Because in order to be unemployed there is a requirement that someone has to be looking for work. Certainly not all 16 year olds or 70-somethings wish to work. So in economics we call these people "out of the labor force." So there's a hint as to one problem in how people interpret information about economics. Unemployment is the condition where people seeking work cannot find it.
So let's drill down a little further. The working age population in America is 16 and up. So anyone 16 and up who isn't looking for work isn't unemployed. They are out of the labor force.
So what is the labor force? The labor force is comprised of those working and those unemployed. Who is unemployed? Those who are actively seeking work who are aged 16 and up.
But what if someone is working part time when they are looking for a full time job? Are they unemployed? No. They are employed and are not reflected in the unemployment statistics.
But what if someone has given up looking for a job out of frustration but would like to work? Are they unemployed? No. They are out of the labor force.
So how does the Labor Department derive their unemployment statistics? They conduct employment surveys across the nation. They use a statistical model that reflects the most accurate number they can given the inability to interview every single American working and not working. It's a model used not just for Democrat presidencies or Republican presidencies. It's a model that is standard.
So if the unemployment rate is 4.7% as reported on the BLS website, does that reflect all the people who are unemployed? Certainly not. Given that some people have given up job searches or who are working at part time jobs when they would like to work full time, the actual rate is higher. Unquestionably higher.
So is the unemployment rate a "hoax, total fiction, phony number, a big joke" as Trump said? No. It's simply the best way to gather unemployment data and report it in a consistent manner that has NEVER been meant to be a literal and exact unemployment number. It's never been a secret that this method is imperfect. But it's a consistent model that has been used for measuring unemployment since 1940. In 1994 a slight revision was made in order to capture data on those who are working part time or who gave up looking out of frustration. But this was data used to capture context to the existing methodology.
It has always been known that the current model under reported unemployment. But it ALWAYS under reports because of the manner in which defines employed, unemployed, and out of the labor force. It doesn't matter who is president, which party is in power, or what gods emerge in the universe.
https://www.bls.gov/cps/cps_htgm.htm
First, let us come to terms that in a nation of millions of people, there will be people in various states of employment. Some will have just turned 16 and thus eligible for employment. Some will be 70 and up and also eligible for employment. There may be millions and millions of people in just those two age categories. So if they aren't working, aren't they unemployed? The answer is NO. Why?
Because in order to be unemployed there is a requirement that someone has to be looking for work. Certainly not all 16 year olds or 70-somethings wish to work. So in economics we call these people "out of the labor force." So there's a hint as to one problem in how people interpret information about economics. Unemployment is the condition where people seeking work cannot find it.
So let's drill down a little further. The working age population in America is 16 and up. So anyone 16 and up who isn't looking for work isn't unemployed. They are out of the labor force.
So what is the labor force? The labor force is comprised of those working and those unemployed. Who is unemployed? Those who are actively seeking work who are aged 16 and up.
But what if someone is working part time when they are looking for a full time job? Are they unemployed? No. They are employed and are not reflected in the unemployment statistics.
But what if someone has given up looking for a job out of frustration but would like to work? Are they unemployed? No. They are out of the labor force.
So how does the Labor Department derive their unemployment statistics? They conduct employment surveys across the nation. They use a statistical model that reflects the most accurate number they can given the inability to interview every single American working and not working. It's a model used not just for Democrat presidencies or Republican presidencies. It's a model that is standard.
So if the unemployment rate is 4.7% as reported on the BLS website, does that reflect all the people who are unemployed? Certainly not. Given that some people have given up job searches or who are working at part time jobs when they would like to work full time, the actual rate is higher. Unquestionably higher.
So is the unemployment rate a "hoax, total fiction, phony number, a big joke" as Trump said? No. It's simply the best way to gather unemployment data and report it in a consistent manner that has NEVER been meant to be a literal and exact unemployment number. It's never been a secret that this method is imperfect. But it's a consistent model that has been used for measuring unemployment since 1940. In 1994 a slight revision was made in order to capture data on those who are working part time or who gave up looking out of frustration. But this was data used to capture context to the existing methodology.
It has always been known that the current model under reported unemployment. But it ALWAYS under reports because of the manner in which defines employed, unemployed, and out of the labor force. It doesn't matter who is president, which party is in power, or what gods emerge in the universe.
https://www.bls.gov/cps/cps_htgm.htm
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