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New: The Official Unemployment Rate: Fact or Fiction

Harry Brill
Wednesday August 23, 2017 - 11:27:00 AM

The Department of Labor's Bureau of Labor Statistics (BLS) has several reasons to underestimate the unemployment rate. First, it is good for the reputation of the federal government's executive branch, which typically takes credit when the unemployment rate is low. Second, it reduces pressure on the federal government to implement social welfare programs. Why, for example, spend money to create jobs when there are plenty of jobs available. Third, the Federal Reserve, which represents the interests of the banking industry, is in a better position to justify raising interest rates if the unemployment rate is low. Since December the Federal Reserve has raised short term interest rates three times this year. As an investment strategist for a Wall Street banking institution explained, "The improvement in the labor market warrants a rate increase, and there's serious economic strength to support it". 

The BLS contacts several thousand households every month to find out whether the occupants are working. If not, they will be counted as unemployed provided that they have actively attempted to find a job within the past four weeks. Although this criteria sounds innocent enough, it is problematic. Many job seekers who have applied for available jobs often wait for a response beyond 28 days to hear from an employer. 

Because many employers have a substantial number of applicants, often a few hundred, it can take at least several weeks and even longer for employers to contact candidates. Also, workers with particular skills may find a very limited number of vacancies for the kind of jobs they are seeking. By counting as unemployed only workers who have attempted to find work in the most recent 4 weeks, the BLS is not taking account of the realities of the job search. As one observer noted, the job search often rides on the back of a snail. 

According to the BLS over 1 1/2 million workers in July searched for work but were not counted as unemployed because their search was not within the last 28 days. Moreover, many unemployed job seekers are not considered unemployed even if they sought work within the 28 day period. The reason given is that many workers are not actively searching. According to the BLS being active entails attempting to contact employers one way or another. If an unemployed worker only checked newspaper and internet ads that person would not be counted as unemployed. 

Although our next door neighbor, Canada, uses a similar approach to counting the unemployed, one important difference is that Canada's count is more inclusive. Any attempt to finding a job is regarded as legitimate. So the U.S. July unemployment rate, which was 4.3 percent, would be about 5.3 percent according to the Canadian criteria. That's over a 20 percent increase! 

Another tremendously important issue is that more than 5 1/2 half millions workers are employed part time because they are unable to obtain full time jobs. They are counted as underemployed rather than unemployed because they do have a job. But since they are unemployed as well as employed, they should be included in the unemployment statistics. Since the number of involuntary part time workers exceeds 5 million, over 2 1/2 million should be counted by the BLS as unemployed. Not including any of these workers from being counted as unemployed should embarrass the BLS since it even includes as employed those who work only one hour in a week. 

Finally, many workers who have conducted a vigorous search for jobs have run out of steam. But they still very much want a job. The BLS acknowledges that the numbers are large. Separately, the BLS' estimated count for July of the number of "Persons who currently want a job" is well over 5 million. Clearly, the real unemployment rate is certainly not 4.3 percent. The BLS' own statistics provides persuasive evidence that the unemployment rate is in the double digits.  

In fact, the prospect of unemployment actually declining to the single digits is unlikely. As jobs continue to be shipped abroad or become digitalized, the economic situation will become even more worrisome. Also, it is important to take into account that about 70 percent of our GNP depends on consumers who are mainly working people. As workers lose jobs and as they confront the downward pressure on wages, their purchasing power along with the economy are likely to experience a steep decline.  

During the 1930s depression a mass movement compelled the federal government to create useful jobs and provide many benefits that working people still enjoy. Only another major political movement can hope to at least match the remarkable accomplishments of that era