Friday’s employment report had good news and bad news. There was considerably less unemployment and considerably less job creation. Moving from 9.4% to 9%, the unemployment rate decreased more than most people expected. However, the job creation number, 36,000, was a disappointment.
Do we have a contradiction? We just do not know. The fuzziness has many reasons. Here are a few:
1) The unemployment rate is based on the Household Survey, a canvas of 60,000 households. The job creation numbers come from the Payroll Survey, collected from approximately 440,000 business and government establishments. You can look here to see how the 2 surveys differ.
2) Furthermore, the Household Survey data might have been skewed because it is collected during one week. What if that week was snowy? What if no one was home?
3) Previous job creation numbers from the Payroll Survey are revised each month as more data is collected. As a result, the Payroll Survey data becomes more accurate over time.
4) However, the unemployment rate is never revised.
Where are we? At the NY Times, Floyd Norris and David Leonhardt tried to work their way through the confusion. Their conclusions? The job market is definitely better than it was during October 2009 and the happier news comes from the Household Survey.
The Economic Lesson
To complicate matters further, the unemployment rate looks only at those who are in the labor force (16 or older, have a job, looking for a job). For that reason, some suggest considering the U-6 rate, which includes the traditional numbers plus “marginally attached” workers and those who are not in the labor force. These workers have either stopped looking for a job or cannot find full time employment. The U-6 rate is a whopping 17.3%.
Hearing yesterday’s employment numbers, I recalled the Malaysian proverb, “Don’t think there are no crocodiles because the water is calm.” Everyone is worried about crocodiles.
Looking beneath the surface, the employment numbers could be troublesome. The water may look smooth because we added jobs; however, they primarily resulted from temporary census workers. During the beginning of May, census hiring peaked at nearly 600,000. Similarly, the good news is that the unemployment rate dropped to 9.7% from 9.9%. Still, though, the broader U-6 rate which included workers marginally connected to the labor force, worsened.
A jobs bill, also could have crocodiles lurking nearby. In a Teaching Company lecture from Professor Robert Whaples, he explained high European unemployment rates through supply and demand. Providing skills, labor is on the supply side. Meanwhile, we have businesses who hire labor as the source of demand. Whaples says that on the supply side, workers tended to be more comfortable remaining jobless because of generous and sometimes unending unemployment benefits. On the demand side, businesses were looking for fewer employees because of higher minimum wage laws and union control over the workplace. Consequently, workers in France, for example, remain unemployed longer than U.S. workers. In the United States, is the crocodile the cost of a European approach?
Maybe we need a new proverb:
“The reverse side always has a reverse side.” (Japanese proverb)
The Economic Lesson
The unemployment rate is calculated by dividing the number of people in the labor force who are actively looking for a job by the the size of the entire labor force. People are defined as being in the labor force if they are 16 or older, employed and receiving a wage or salary or unemployed but looking for a job.
My class has wondered, with a civilian labor force of over 150 million people, how unemployment statistics can possibly be accurate.