7 ms·

What's the Real U.S. Unemployment Rate? We Have No Idea

70 points by T-A 12y ago

chatmasta 12y ago
I just came from a class today where Stephen Roach (ex chief economist at Morgan Stanley) criticized this same gap between reported and actual unemployment. He actually focused on a different worrying number: participation rate. The number of people who qualified as "part of the labor force" declined 3 percentage points, in the same period of time that "unemployment" increased by the same amount. His point was that the way we model economics data will inherently result in missed predictions. We need to remember this fundamental flaw of modeling when we interpret the results of a model, like unemployment rate.
- judk 12y ago
  Why is it surprising that participation drops as unemployment grows? x vs 1-x.
  - npkarnik 12y ago
    No, unemployed people count as participating. Non participating people don't count towards the official unemployment rate. For participation to drop as unemployment grows is the worst possible combination of trends.
  - nhaehnle 12y ago
    Conceptually, the working age population is divided into participating and non-participating. The participatings are further divided into working and unemployed (and working-but-looking-for-more-work is a useful category as well). It is indeed unsurprising that participation drops in a period of high unemployment, but it's not just a matter of mathematics. Instead, it's the effect of people simply giving up looking for work. That said, it's important to watch out for what the participation rate is measured against. Obviously, the participation rate of the population as a whole can drop for entirely benign reasons (higher percentage of retirees).
pessimizer 12y ago
We know what the prime age employment rate is, though. I don't know what more information this 'unemployment rate' is supposed to add to it. http://delong.typepad.com/sdj/2014/08/male-and-female-prime-age-employment-rates-since-2000.html http://delong.typepad.com/sdj/2014/08/male-and-female-prime-... Why try to guess whether people are truly expressing their desires?
curiouscats 12y ago
The article provide interesting information on the process for calculating the unemployment rate. But it also misleads in saying "real US unemployment rate." Dr. Deming would say "there is no true value" of any measured process. The results depend on the process which includes the operation definitions. http://management.curiouscatblog.net/2009/11/05/deming-there-is-no-true-value/ http://management.curiouscatblog.net/2009/11/05/deming-there... Over time the value of a measure (as a proxy measure for some condition you care to monitor) can change. http://management.curiouscatblog.net/2004/08/29/dangers-of-forgetting-proxy-nature-of-data/ It is important to update measures to avoid using proxies that lose value. The unemployment rate certainly has proxy issues. But there is no "true unemployment rate." There are ways to change the process to focus on different things (make the proxy better matched to certain issues). But also it seems to me, unemployment rate needs to have other related measures that are considered in concert with the unemployment rate (such as the labor force participation rate, perhaps some measure of under-employment etc.). Those paying much attention do use other measures in concert but the last few years I read lots of different people complaining that the unemployment rate doesn't capture various aspects of how the job market is poor (and often claiming the unemployment rate was "inaccurate" as though there was a platonic form of the actual rate divorced from the measure process.
- eruditely 12y ago
  Neg. At first glance obscurantist garbage. We do not need to hold ourselves down to long definitions we can use various definitions and arrive at meaningful conclusions. Probability has already solved most of these issues. Operant knowledge is not blanket relativism.
narrator 12y ago
Shadowstats is a private firm that sells its own calculations of economic statistics : http://www.shadowstats.com/alternate_data/unemployment-charts http://www.shadowstats.com/alternate_data/unemployment-chart... According to them, unemployment is about 23%.
- hudibras 12y ago
  Shadowstats is a huge scam site. Their methodology is to to take the official government numbers (unemployment, inflation, whatever) and add an arbitrary constant to it to make the numbers more attractive to right-wingers so that they'll fork over the annual fee to get "the real story." I'm not exaggerating, that's their entire shtick.
  - jpatokal 12y ago
    I suspect you're exaggerating at least a tiny bit, since the difference between their unemployment rate and the official figure is not constant: theirs has been trending up over the past 4 years, while the official figures are going down.
    - hudibras 12y ago
      As an example, if you look closely at the alternative unemployment chart that rayiner linked to [0] you can see that the shadowstats line (blue) exactly matches the U6 line (grey) down to the very last wiggle. Until 2010, that is, when unemployment started going down and shadowstats needed to keep people shelling out $175 a year. [0] http://www.shadowstats.com/alternate_data/unemployment-charts http://www.shadowstats.com/alternate_data/unemployment-chart...
    - d4vlx 12y ago
      It looks like they may have added some growing possibly linear function to the unemployment rate instead of a constant starting in 2009. All the better to push their fear mongering agenda/sales tactic I guess.
  - prokes 12y ago
deleted 12y ago
[deleted]
nostromo 12y ago
The official unemployment rate seems too complicated to me. I prefer participation rate, which is very straight forward to measure. The bad news is that participation rate in the labor force has continued on a downward trend even as the economy rebounds. http://data.bls.gov/timeseries/LNS11300000 http://data.bls.gov/timeseries/LNS11300000 I think a growing economy that does not create jobs should concern us all.
- deleted 12y ago
  [deleted]
- rayiner 12y ago
  Because U.S. demographics are rapidly changing, it's important to look at these figures adjusted for the overall aging of the population: http://crr.bc.edu/wp-content/uploads/2014/02/IB_14-4.pdf http://crr.bc.edu/wp-content/uploads/2014/02/IB_14-4.pdf (page 3). The decline in labor force participation rate is much less than it seems if you adjust for age.
  - nostromo 12y ago
    I agree, but still find it troubling. If a person is laid off, or if a person retires and is not replaced, the net effect is still one less job. If population growth continues to outpace job growth, we're going to end up with a nasty game of economic musical chairs.
    - rayiner 12y ago
      Look at page 28 of this PDF: http://www.bls.gov/opub/ooq/2011/winter/art02.pdf http://www.bls.gov/opub/ooq/2011/winter/art02.pdf. From 2010 to 2020, the civilian labor force aged 16 to 55, prime working years, is actually going to shrink by almost a million people. So the population is growing, but more of those people are of ages where it is typical to not work, so labor force participation rate can naturally be expected to go down, even if nothing is wrong with the economy.
      - 12y ago
specialist 12y ago
#1 I care more about the number jobs over time, not the unemployment rate. Absolute numbers vs ratios. #2 I also want to get an idea of how many people are over employed and under employed. -- Payroll tax receipts show how many people are employed. Then do a straight forward head count. Employment rate = jobs / people. Then guessimate (tally) the number of hours worked. Yearly Employment load = hours reported / ( people * 2080 ) Why is this hard? Why do we need sampling, when we can just measure the totals (with a margin of error)? Why do we have fudge factors like "discouraged workers"? People are either working or they're not. Student, disabled, retired, whatever, they're still unemployed. When elderly people continue to work past 65 and the working poor have multiple jobs, I'm really not terribly interested in splitting hairs. Break up employment rates by demographic group, if it matters that much.
- clebio 12y ago
  I always figured that sampling, and electoral voting, are legacy mechanics from when it wasn't as easy to tally large numbers quickly (via technology). Real, per-person voting (there's probably a term for that?) -- and even itemized taxation (e.g. choose schools, sanitation, law enforcement, 'defense', etc.) -- should be entirely within our capabilities now. But, of course, politics is a slow-rolling stone.
  - byroot 12y ago
    > Real, per-person voting (there's probably a term for that?) I suppose you mean direct election[0] http://en.wikipedia.org/wiki/Direct_election http://en.wikipedia.org/wiki/Direct_election
    - ctdonath 12y ago
      There are very good reasons for the "electoral college" outside of "real per-person voting" issues.
      - mhurron 12y ago
        And they are? The Electoral College is in place just for Presidential Elections because it used to be that it was impossible for the various candidates to peddle their platform all over the country. No other position had that issue, governors, senators, congressmen are all far more local elections. That issue doesn't exist anymore. There is no reason the president can not be directly elected.
known 12y ago
I'd say it's BLS numbers * H1Bs * 5

70 points by T-A 12y ago

I just came from a class today where Stephen Roach (ex chief economist at Morgan Stanley) criticized this same gap between reported and actual unemployment. He actually focused on a different worrying number: participation rate. The number of people who qualified as "part of the labor force" declined 3 percentage points, in the same period of time that "unemployment" increased by the same amount. His point was that the way we model economics data will inherently result in missed predictions. We need to remember this fundamental flaw of modeling when we interpret the results of a model, like unemployment rate.

judk 12y ago
Why is it surprising that participation drops as unemployment grows? x vs 1-x.
- npkarnik 12y ago
  No, unemployed people count as participating. Non participating people don't count towards the official unemployment rate. For participation to drop as unemployment grows is the worst possible combination of trends.
- nhaehnle 12y ago
  Conceptually, the working age population is divided into participating and non-participating. The participatings are further divided into working and unemployed (and working-but-looking-for-more-work is a useful category as well). It is indeed unsurprising that participation drops in a period of high unemployment, but it's not just a matter of mathematics. Instead, it's the effect of people simply giving up looking for work. That said, it's important to watch out for what the participation rate is measured against. Obviously, the participation rate of the population as a whole can drop for entirely benign reasons (higher percentage of retirees).

pessimizer 12y ago

We know what the prime age employment rate is, though. I don't know what more information this 'unemployment rate' is supposed to add to it. http://delong.typepad.com/sdj/2014/08/male-and-female-prime-age-employment-rates-since-2000.html http://delong.typepad.com/sdj/2014/08/male-and-female-prime-... Why try to guess whether people are truly expressing their desires?

curiouscats 12y ago

The article provide interesting information on the process for calculating the unemployment rate. But it also misleads in saying "real US unemployment rate." Dr. Deming would say "there is no true value" of any measured process. The results depend on the process which includes the operation definitions. http://management.curiouscatblog.net/2009/11/05/deming-there-is-no-true-value/ http://management.curiouscatblog.net/2009/11/05/deming-there... Over time the value of a measure (as a proxy measure for some condition you care to monitor) can change. http://management.curiouscatblog.net/2004/08/29/dangers-of-forgetting-proxy-nature-of-data/ It is important to update measures to avoid using proxies that lose value. The unemployment rate certainly has proxy issues. But there is no "true unemployment rate." There are ways to change the process to focus on different things (make the proxy better matched to certain issues). But also it seems to me, unemployment rate needs to have other related measures that are considered in concert with the unemployment rate (such as the labor force participation rate, perhaps some measure of under-employment etc.). Those paying much attention do use other measures in concert but the last few years I read lots of different people complaining that the unemployment rate doesn't capture various aspects of how the job market is poor (and often claiming the unemployment rate was "inaccurate" as though there was a platonic form of the actual rate divorced from the measure process.

eruditely 12y ago
Neg. At first glance obscurantist garbage. We do not need to hold ourselves down to long definitions we can use various definitions and arrive at meaningful conclusions. Probability has already solved most of these issues. Operant knowledge is not blanket relativism.

narrator 12y ago

Shadowstats is a private firm that sells its own calculations of economic statistics : http://www.shadowstats.com/alternate_data/unemployment-charts http://www.shadowstats.com/alternate_data/unemployment-chart... According to them, unemployment is about 23%.

hudibras 12y ago
Shadowstats is a huge scam site. Their methodology is to to take the official government numbers (unemployment, inflation, whatever) and add an arbitrary constant to it to make the numbers more attractive to right-wingers so that they'll fork over the annual fee to get "the real story." I'm not exaggerating, that's their entire shtick.
- jpatokal 12y ago
  I suspect you're exaggerating at least a tiny bit, since the difference between their unemployment rate and the official figure is not constant: theirs has been trending up over the past 4 years, while the official figures are going down.
  - hudibras 12y ago
    As an example, if you look closely at the alternative unemployment chart that rayiner linked to [0] you can see that the shadowstats line (blue) exactly matches the U6 line (grey) down to the very last wiggle. Until 2010, that is, when unemployment started going down and shadowstats needed to keep people shelling out $175 a year. [0] http://www.shadowstats.com/alternate_data/unemployment-charts http://www.shadowstats.com/alternate_data/unemployment-chart...
  - d4vlx 12y ago
    It looks like they may have added some growing possibly linear function to the unemployment rate instead of a constant starting in 2009. All the better to push their fear mongering agenda/sales tactic I guess.
- prokes 12y ago

deleted 12y ago

[deleted]

nostromo 12y ago

The official unemployment rate seems too complicated to me. I prefer participation rate, which is very straight forward to measure. The bad news is that participation rate in the labor force has continued on a downward trend even as the economy rebounds. http://data.bls.gov/timeseries/LNS11300000 http://data.bls.gov/timeseries/LNS11300000 I think a growing economy that does not create jobs should concern us all.

deleted 12y ago
[deleted]
rayiner 12y ago
Because U.S. demographics are rapidly changing, it's important to look at these figures adjusted for the overall aging of the population: http://crr.bc.edu/wp-content/uploads/2014/02/IB_14-4.pdf http://crr.bc.edu/wp-content/uploads/2014/02/IB_14-4.pdf (page 3). The decline in labor force participation rate is much less than it seems if you adjust for age.
- nostromo 12y ago
  I agree, but still find it troubling. If a person is laid off, or if a person retires and is not replaced, the net effect is still one less job. If population growth continues to outpace job growth, we're going to end up with a nasty game of economic musical chairs.
  - rayiner 12y ago
    Look at page 28 of this PDF: http://www.bls.gov/opub/ooq/2011/winter/art02.pdf http://www.bls.gov/opub/ooq/2011/winter/art02.pdf. From 2010 to 2020, the civilian labor force aged 16 to 55, prime working years, is actually going to shrink by almost a million people. So the population is growing, but more of those people are of ages where it is typical to not work, so labor force participation rate can naturally be expected to go down, even if nothing is wrong with the economy.
    - 12y ago

specialist 12y ago

#1 I care more about the number jobs over time, not the unemployment rate. Absolute numbers vs ratios. #2 I also want to get an idea of how many people are over employed and under employed. -- Payroll tax receipts show how many people are employed. Then do a straight forward head count. Employment rate = jobs / people. Then guessimate (tally) the number of hours worked. Yearly Employment load = hours reported / ( people * 2080 ) Why is this hard? Why do we need sampling, when we can just measure the totals (with a margin of error)? Why do we have fudge factors like "discouraged workers"? People are either working or they're not. Student, disabled, retired, whatever, they're still unemployed. When elderly people continue to work past 65 and the working poor have multiple jobs, I'm really not terribly interested in splitting hairs. Break up employment rates by demographic group, if it matters that much.

clebio 12y ago
I always figured that sampling, and electoral voting, are legacy mechanics from when it wasn't as easy to tally large numbers quickly (via technology). Real, per-person voting (there's probably a term for that?) -- and even itemized taxation (e.g. choose schools, sanitation, law enforcement, 'defense', etc.) -- should be entirely within our capabilities now. But, of course, politics is a slow-rolling stone.
- byroot 12y ago
  > Real, per-person voting (there's probably a term for that?) I suppose you mean direct election[0] http://en.wikipedia.org/wiki/Direct_election http://en.wikipedia.org/wiki/Direct_election
  - ctdonath 12y ago
    There are very good reasons for the "electoral college" outside of "real per-person voting" issues.
    - mhurron 12y ago
      And they are? The Electoral College is in place just for Presidential Elections because it used to be that it was impossible for the various candidates to peddle their platform all over the country. No other position had that issue, governors, senators, congressmen are all far more local elections. That issue doesn't exist anymore. There is no reason the president can not be directly elected.

known 12y ago

I'd say it's BLS numbers * H1Bs * 5