Painting the full picture of the employment situation
May 05, 2015
It's very frustrating to read the mainstream articles about the recent unemployment report. For example, the New York Times said "U.S. Jobless Claims Hit 15-year Low." (link)
At this point, everyone should be aware of how employment statistics, in particular, the unemployment rate, is computed. Certainly, the editors at the Times have heard of U3 and U6 metrics, and the employment-population ratio. Any report that does not provide all of these metrics is a report that you can't trust.
Here is a brief version of the story in a few charts that anyone can easily generate from the FRED site. (link)
If we only report the headline unemployment rate, the picture looks rosy.
The unemployment rate has been in steady decline since peaking in 2010. The current level hasn't been seen since mid-2008, and we may soon see levels reach levels prior to the recession, i.e. the level of the boom years!
Isn't that a surprise? That's what the mainstream media are reporting.
We are facing a far less rosy picture if we consider a different metric of unemployment.
It turns out the headline statistic uses a very liberal view of who's employed. This second chart is a more "common-sense" count of who's unemployed. Even though the first unemployment metric says we are almost back to pre-recession performance, the second metric says we are still about 2 percentage points above what it used to be in 2008. That is a much less happy picture.
There are two major distinctions between the metrics. If you have a part-time job for even one hour during the period when the government conducts its survey, you are considered "employed" on the first chart but not on the second. Besides, if you are too discouraged to even look for a job, you are not considered unemployed in the first chart but you are unemployed in the second.
The most important chart, though, is the employment-population ratio. You might think that an unemployment rate of 5.5% means that 5.5% of the nation's population are unemployed. Not true. Perhaps it means 5.5% of the working-age population (excluding kids and elderly) are unemployed? Still not true.
As a result of a bipartisan effort, the base of that proportion is the number of people whom the government deems to be "wanting a job".
Before the latest recession, the proportion of people who "want a job" has been around 63% for a very long time. During the recession, this proportion plunged to below 59%. Currently, it has moved above 59% but this is about 4% below the mid-2008 level. An extra four percent of the population has decided that they "don't want a job", and they are not counted at all in the unemployment rate in the first chart above.
This series of charts illustrate why looking at a single metric is dangerous. By the first metric, the job market is the same as in mid-2008. When we look at the other two metrics, we immediately see that it's the same but not really the same.
I have a whole chapter in Numbersense (link) on employment statistics. In the chapter, I mentioned John Crudele's columns at the New York Post. As usual, he is one who will peel back the onion. His take on the latest statistics is here. While his views can be a bit extreme, reading his take on these statistics is more beneficial to your health than those of the usual sources.
There are also metrics like full-time weekly earnings which make it look like incomes are improving, but they don't account for people increasingly working part-time.
I don't know about the US but in Australia we tend to have more people move onto social security when the employment market is tough. It makes sense that if someone is in their sixties and has had a heart attack that if they can find a suitable job they will take it, but if not will attempt to qualify as being unsuitable for work.
Posted by: Ken | May 05, 2015 at 05:35 PM
Great post. Better media sources on the economy, like the WSJ, typically do report U6 as well as explain it. Also very useful to look at long-term unemployed, both the number as well as the rate. Thinking in terms of the number of actual people that have been stuck without a job for 6 months is pretty sobering.
Posted by: PerfctlyGoodInk | May 05, 2015 at 07:21 PM
PGI: Usually yes but WSJ's coverage on April 30th was the same as that of NYT in this case. Here is their version of the article. No mention of U6 or employment-population ratio.
Ken: Yes, there are many more statistics to look at. The ones I pointed out requires practically no manipulation on FRED. Maybe I will do a post on weekly wages too! Also, I don't think we have cohort data; what proportion of people are getting better/worse jobs when they get re-employed?
Posted by: junkcharts | May 05, 2015 at 11:05 PM
Yeah, they did better with their coverage on April 3rd. Funny, it's even the same author.
I'm guessing the difference is on what new data has been released that they are reporting on. The BLS releases the full employment situation report with U3 and U6 near the beginning of the month.
Posted by: PerfctlyGoodInk | May 06, 2015 at 10:21 AM
NYT did have somewhat better coverage on April 4th, but not nearly as good as WSJ. It did not report U6 like WSJ did, but it did report the labor participation rate, as well as "Working part time, but want full-time work" and "People who currently want a job," albeit in a chart and not in the article. It also more heavily emphasizes U3 in both the words and graphics.
Posted by: PerfctlyGoodInk | May 06, 2015 at 10:43 AM
Still not good enough….
Ideally, we need a graph that indicates what % of the population is in a job they are educated, qualified, and experienced to be in. The 'objectively satisfied employed'. What are those census people doing out there every time?
Posted by: Jer | May 18, 2015 at 02:43 PM
The labor market is very sticky.
Workers are really slow in getting the hints from economists and employers.
But finally, they are doing as economists and employers have been calling for them to do, shrink the supply of labor.
After all, when the offered prices decline, supply offered should decline.
Thus with stagnant or falling prices offered for labor, workers should stop being workers and people should find other alternatives to becoming workers.
Posted by: mulp | May 19, 2015 at 07:47 PM
mulp: "workers should stop being workers and people should find other alternatives to becoming workers."
Such as what? If you are wealthy, you have other options, such as starting a small business or just increasing the amount of leisure you enjoy, but most workers are not in that position.
The labor market is very different from the markets of goods and services. A typical business has far more resources available to it and thus has more options to respond to a price decrease than a typical worker.
Posted by: perfectlyGoodInk | May 20, 2015 at 12:50 PM