Damned Lies and Employment Statistics

Yes, some “real” unemployment rate is roughly double the official 5.1%. But there’s nothing sinister about that, and the job market really is gradually improving.


Some 19th-century wit — maybe British Prime Minister Benjamin Disraeli or American humorist Mark Twain or somebody else — once said that there are “lies, damned lies, and statistics“.

This week the Bureau of Labor Statistics issued its monthly jobs report, in which it asserted that the economy added a good-but-unspectacular 173,000 jobs in August, bringing the unemployment rate down to 5.1%, the lowest it’s been since early in the Great Recession of 2007-2009.

As happens every month, a number of pundits and politicians then blew a lot of hot air about how these numbers hide the “real” unemployment rate, which is much higher than 5.1%. Some even made it sound as if an evil government conspiracy is trying to fool the public into thinking things are getting better when they’re actually getting worse. Ben Carson expressed this idea in May:

What you have to know is that you can make the unemployment rate anything you want it to be, based on what numbers you include and what numbers you exclude.

Well, pretty much whatever you want to include or exclude, the BLS tracks that too, and publishes it for everybody to see. The wonks at the BLS refer to the “official” unemployment rate as U-3, but they also keep track of  U-4, U-5, and U-6, each of which defines unemployed more broadly than the previous U. U-4 includes people who would like a job, but are too discouraged to look for one; U-5 adds people who want a job, but haven’t looked recently for some other reason; and U-6 adds people who are working part-time when they would rather work full-time.

U-6 is what people (like the conservative Washington Examiner and liberal Bernie Sanders) are pointing to when they say the “real” unemployment rate is 10.3%. And that’s perfectly reasonable thing to say: 10.3% of potential workers wish they could work full-time, but haven’t found jobs that let them do so.

What isn’t reasonable is the conspiratorial that’s-what-they-want-you-to-think attitude that Carson and others are promoting. For example, The Daily Caller quoted Sanders’ comment accurately, and then inaccurately claimed: “That dose of reality is like a wet blanket on President Obama’s recent claims that the economy is improving.” It was nothing of the sort.

You see, the 10.3% U-6 number wasn’t smuggled out of the BLS by some whistle-blower; it was published in the same report as the 5.1% U-3 number. And while 10.3% unemployment sounds a whole lot worse than 5.1%, in the context of similar measurements taken over time, it tells the same story: The job market has been getting consistently better since very early in President Obama’s administration.*

unemployment2This graph (constructed with tools at Macrotrends), shows U-3, U-5, and U-6 over the last ten years. All three measures of unemployment bottom out in March, 2007; climb sharply to a peak October, 2009 (nine months into the Obama administration), and then decline to a level that is still a bit above the March, 2007 low.**

So U-3 is 5.1%, down from a peak of 10.1% but still not at the 4.4% pre-recession low. And U-6 is 10.3%, down from a peak of 17.4% but still not at its 8.0% pre-recession low. The two stats tell the same story.

But if you really want to make the slow-but-steady economic uptrend sound like smoke and mirrors, you selectively quote another stat openly published by the BLS: the labor participation rate, the percentage of people over 16 who are either working or looking for work.

The LPR has been going down throughout the Obama administration and now stands at 62.6%. So Carson, Paul Ryan, and other Republicans like to point to it as proof that things have actually been getting worse.

The problem with using the LPR as a measure of economic health is that good news can drive it down too, as people who have some economic slack choose not to work: older people retire, younger ones stay in school, couples let one spouse focus on raising the children, and so on.

If you just show a graph of the plunging LPR during the Obama administration, it looks like something must be going horribly wrong. But you see a different pattern if you take a longer view.

This half-century graph makes it apparent that the major trends in LPR don’t have a lot to do with the ups and downs of the business cycle. Otherwise, you’d have to conclude that the 1960s were some economic hellscape, rather than the relative good times they actually were.

What you’re mainly seeing in that big hump-in-the-graph is the life cycle of the Baby Boom generation, added to the effect of middle-class women entering (and staying in) the job market through the 1970s and 1980s. That Boomer-retirement trend is affected on the margins by the economy (as 60-somethings decide whether to retire this year or next year), but barring some catastrophe that keeps 80-year-olds looking for work in large numbers, the LPR should continue its downward trend for years to come, independent of who is president or what policies they implement.

So yes, there are some damned lies going around in the guise of statistics. But the notion that the economy and job market have been slowly getting better for the last six years is not one of them.


* If you really want to get wonky about this, we’re talking about the difference between a quantity that varies with time and its first derivative. Slightly less wonky: the difference between the raw total and the trend.

As far as I’ve noticed, Sanders has been using these numbers responsibly, to claim that the economy still needs a lot of jobs, and so could use the massive infrastructure project he has proposed. I haven’t exhaustively searched his speeches, but I haven’t seen him question the reality of the upward trend in the job market.

** It’s arguable that the 2007 low isn’t a fair comparison, since a lot of those jobs depended on the soon-to-pop real estate bubble.

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Comments

  • Justin S  On September 7, 2015 at 1:56 pm

    Have you looked into the actual numbers on boomers affecting the Labor Participation Rate? I’ve been seeing pretty consistent messaging on the subject for as long as I’ve been reading up on the subject (2008’ish) and the numbers don’t seem to line up too well.

    This forbes article breaks it down pretty well:
    http://www.forbes.com/sites/realspin/2014/01/15/u-s-unemployment-retirees-are-not-the-labor-exodus-problem/

    …but the short of it is

    1.) the problem goes way back to the 90’s and clearly isn’t tied to any one administration

    2.) Boomers retiring (or not retiring) affect things, but a lot less than the pundits claim

    3.) People under 55 are steadily leaving (or failing to enter) the workforce.

    Anyway, the gist of the Forbes article can be found in other publications, but this topic seemed to get the most attention in the early teens, so you might have to go back to 2012 or earlier to find anything much on this from The Economist, etc.

    It changes the narrative a lot if only 1/3rd of the decline in the LPR is due to boomers!

    • weeklysift  On September 7, 2015 at 3:16 pm

      I wish I could track these ideas back to more reputable sources, i.e.not people with a political ax to grind. Robert Romano is from Americans For Limited Government and writes for their NetRightDaily. His main source is from the Manhattan Institute, which is one of those Koch Brothers creations that only look like academia.

      Within the data quoted, the biggest drop is in people aged 16-24, which would just say that people are staying in school longer, i.e., there are fewer unskilled jobs and jobs you used to get with a bachelors require a masters now. None of that seems terribly alarming.

      Then there’s the fact that LPR is just returning to regions it used to dwell in all the time.

      • Justin S  On September 7, 2015 at 4:17 pm

        Thanks for the reply. I guess the best we can do is check the numbers? I don’t trust much from Forbes but if the numbers are correct, than Romano’s point is valid.

        I worry. I’m on the younger end of the career spectrum and my anecdotal observations line up very clearly with the idea that the real problem is a job shortage (and from down here, blaming boomers sounds like a cover-up). I have a lot more friends not participating in the labor pool than I have boomer relatives. I don’t mean to blame Obama or any other administration… this issue looks way bigger than them. I just wish people were taking it more seriously. There are an awful lot of not-technically-kids-anymore who are differing poverty by taking out unshakable loans and going back to school so that they can compete for low paying jobs that shouldn’t technically even require a 4-year degree, let alone a 6-year degree. That’s going to keep getting worse.

        Some anecdotes: My wife’s got a BA from Brown and and works as an office temp… the kind of job that people of older generations would get to pay their way through school… not as a post-grad career. Meanwhile, the office I work in is hiring people with master’s degrees to do work that our high school interns don’t seem to have much trouble completing. The same was true at my last job. It feels like we’re getting more and more educated to do easier and easier work. If that proves true, wages are going to get crushed lower regardless of how well the economy does, and consumer spending power is going to get weaker and weaker as more of us are burdened with educational debts that we can’t reasonably afford. …anyway, that’s why I worry, and that’s why I cringe when people shrug off the LPR as a statistical glitch tied to boomers.

      • weeklysift  On September 7, 2015 at 6:58 pm

        I will definitely look into this deeper. Your experience reflects a lot of the fears I have for my friends’ kids, who are mostly in college now.

      • weeklysift  On September 8, 2015 at 6:58 am

        Here’s an article from the St. Louis Fed, comparing LPR by age group in various countries. Staring at those graphs, though, I’m having a hard time drawing a clear conclusion.

      • Anonymous  On September 8, 2015 at 3:20 pm

        Wow, that’s a great link!

        The chart of workers aged 25-54 is pretty telling, and it’s backed up in the conclusions:

        “Despite the similar trends in youth, prime-age and pre-retirement participation rates, the U.S. is the only country in our sample experiencing a recent decline in the aggregate labor force participation rate. This is explained mostly by a larger-than-average drop in the labor force participation of prime-age males…”

        Thanks for doing the heavy lifting! I wish the news reporters would dig this stuff up as well as you do. 🙂

  • Sharon  On September 8, 2015 at 1:59 pm

    More anecdotes, I know many of the Boomer generation, especially 55-60, who lost their jobs and are having trouble finding new ones. There are jobs but they don’t pay as well, and don’t want to hire anyone “too experienced”, ie. too old.

  • Brent Holman  On September 11, 2015 at 11:07 pm

    I’m not ‘working’ because I’m taking care of my elderly mom…I fail to see how I can have a job that allows me to be essentially on-call from 7:00am to 7:00 am on any particular day of the week. She doesn’t pay much, either, maybe 500 bucks a month. That is it. Last year I lived on her 3000, plus 5000 from an insurance policy my dad had left us, that we did not even know about for a couple years. 8 grand. But I likely made another 1000 by selling things I junk-picked, and 250 bucks on lotto tickets….I don’t mind, but I’m certainly dead in the water…

  • Jonathan  On September 21, 2015 at 10:08 am

    The measure of LPR, Unemployment, etc. are all important. But the real gorilla in the room is what I see almost never discussed, and that is the falling median income. If you delve into the BLS reports, one fact becomes glaringly apparent. The “jobs” that are being created and filled, are mostly in the low pay/part time variety.
    This does not bode well for an economy whose engine is consumer purchasing power. As inflation (yes I said inflation) continues to rise, despite what Government decides to include in inflation statistics, more people are forced to cut back and/or delay purchases. Yes, I know they say there is almost zero inflation, but the truth is – since 2007, prices on food, gas, utilities etc. have all been rising, not to mention the big increases in healthcare costs that are now rolling out.
    The bottom line is, wages are stagnant, and show very little sign of increasing anytime soon. This is the true tell tale sign of a healthy economy, especially one where consumer spending accounts for such a huge chunk of economic activity.

    • Justin S  On September 21, 2015 at 11:24 am

      Another interesting spin on inflation & purchasing power is that being able to buy a produced good in one time period doesn’t reflect the “same” purchase in another.

      Consumer goods are effectively a bundle of resources, services, and labor. If you want to get technical, it’s arguable that measuring just the end products doesn’t accurately represent purchasing power.

      Some people argue that it’s better to measure wages in the amount of a “pure” commodity like gold to see the more honest impact of purchasing power. I’m guessing that the merits of that position are above my knowledge level, but at face value it makes some degree of sense… and also helps explain why things like education and healthcare are rising in costs at faster rates than things like cars. After all, technology has improved the rate that we produce cars at, dramatically reducing labor. Meanwhile, tech has only improved medical outcomes, much less the rate at which doctors can see patients.

      (unfortunately the people arguing this seem to largely be loony-sounding gold standard people, and I haven’t seen a counter-point discussion from someone more neutral or academic)

    • Justin S  On September 21, 2015 at 11:35 am

      Also, people tend to confuse/misuse median income data by mixing/swapping median household income with median personal income. Household makeups change both over time and geography. The household makeup in rural middle america isn’t the same as it is in urban cores… I’m guessing you’re not going to find a lot of group houses in rural kansas with 3-5 working unmarried professionals with masters degrees and no kids, but there are several of those on my block in DC… even if you managed to find people in both places with the same jobs and educations. In a place with cheaper housing, people tend to spread out more. That’ll throw the number off.

Trackbacks

  • By Where to Begin | The Weekly Sift on September 7, 2015 at 11:13 am

    […] This week’s featured posts are “Is Kim Davis a Martyr?” and “Damned Lies and Employment Statistics“. […]

  • By Unsound minds | The Weekly Sift on March 7, 2016 at 11:16 am

    […] as I’ve explained before, the Bureau of Labor Statistics keeps track of those folks too. It publishes a variety of […]

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