Why You Can’t Believe Government Statistics; Part 1– The Real Unemployment Rate is 16.4%

August 18, 2008

The latest jobless report out for May 2009 says the unemployment rate surged to 9.4, its highest rate in years.  While that sounds bad, the reality is far worse.

United States Government uses the most dishonest statistical skullduggery to calculate the official “Unemployment Rate.” Lying with statistics is easy. It is not how you count; it’s how you define what to count, and over the years both political parties have used this trickery.

You can drastically skew the Unemployment Rate in two ways. You can exclude by definition a large group of unemployed workers or you can include in the “employed” category a new group whose membership is 100% employed.

How far off is the real number of unemployed to the “official” number? You have to look deep into the Bureau of Labor Statistics monthly report to find this out. Buried in footnote U-6 of Table A-12 of the monthly report is a rate of unemployment that comes pretty close to the actual number of people out of work and who want to work .

As you might have already guessed that real rate is a lot higher. For example, here are the unemployment numbers for May 2009. The official unemployment rate states that 9.4% of the workforce is unemployed. The real rate (people who want a job but can’t find one) is 16.4%.

The “official rate” misses over 8,000,000 able bodied workers that want a job. That’s equivalent to not counting every man, women and child in the entire state of Indiana.

THREE CARD MONTE WITH THE UNEMPLOYMENT RATE

In 1983 President Reagan needed his economic plan to look robust. So he lumped 1.5 million U.S. Army, Navy, Air Force, and Marine service personnel in with the civilian workforce. Overnight the unemployment rate was reduced by .2%.

In 1994 President Clinton employed a different approach. He re-defined marginally attached and discouraged workers. After 1994 a worker was NOT considered unemployed if he or she had given up hope and had not looked for a job in the last four weeks or was employed part-time but wanted full time employment.  Really?  If you have been out of work for a year and want gainful employment but have given up hope you are suddenly not there?

Again this skews the number in favor of the government. For example if your workforce is 10 million with 100,000 unemployed workers, your unemployment rate is 1%. Add 1 million marginally and discouraged workers to the workforce but do not include them as unemployed and your rate drops to .9%. Nice slight of hand, but these workers still need a paycheck.

Who are these “marginally attached” and “discouraged workers”? For example, in May 2008 a little more than  1.4 million people were marginally added to the workforce, but were not considered unemployed. 412,000 were classified as “discouraged workers”.  Remember they are the  workers not currently looking for work because they believed no jobs were available for them. That really sounds like they ARE unemployed.

One million people were marginally attached to the labor force because they had not searched for work in the 4 weeks preceding the survey for reasons like school or family responsibilities. That sounds like they should NOT be part of the workforce.

If the “official unemployment rate” is 5.7%, it is reasonable to assume that 94.3% of the workforce is employed. But no, included in that 94.3% are people who do not have jobs such as the 1.4 million “discouraged” or “marginally attached” workers.

With all of this statistical manipulation you cannot compare the “official unemployment rate” in the U.S. with any other country or historically with any past rate for the United States. The current official rate would have to be adjusted to take into consideration all historical variances and definitional changes.

Interestingly no one even discusses this. Everyone assumes that the “official rate” accurately projects the number of unemployed workers compared to the total workforce. No, that number is found in footnote U-6 of Table 12 to the report.

We really ought to be more honest with our statistics.

Update:  The latest jobless numbers:  Unemployment rate jumps to 9.4% for May 2009.  The real number 16.4!!