Blog PostMarch 28, 2014

How We Measure Unemployment Needs Overhaul

There is a growing cacophony of voices calling for the government to change the way it gathers unemployment numbers. To start, Mercatus Center researcher Keith Hall recently wrote a piece entitled, “America Needs a Better Measurement of Unemployment.” Pending legislation and a slight from the Federal Reserve indicate that such a measurement overhaul is long overdue.

Job Creators Network strongly agrees that the way the monthly Bureau of Labor Statistics (BLS) numbers are collected and drummed out by Washington are not only flawed and misleading, but dangerous, because policymakers are using this flawed information to make decisions that affect employers, employees and their families.

Hall points out several archaic ways by which the BLS has collected employment data through household and payroll surveys since the 1930’s. For instance, the “threshold” by which the BLS considers someone employed is quite low, with an individual needing “to complete just one hour of any type of work for pay or profit.”

One hour. And you don’t even have to get paid to be counted.

The BLS also includes as employed folks who perform work that is far outside their professional purview:

“(E)xperienced engineers doing nothing more than a couple of hours of paid yard work for a neighbor as employed — just as if they were continuing to work in their original occupation at the same pay.”

The worst distortion is perhaps that the BLS does not factor in the labor force participation. This is the percentage of the population who is “work-ready”; they actually work or are looking for work. This rate was 63 percent last month. It was up near 67 percent between 1989 and 2009.

So the work-ready force is smaller, which Hall says should not happen during a recession. And comparing this figure with the 65.7 percent labor force participation rate when our President took office, our jobless rate would be 10.5 percent, not 6.7 percent as publicized.

This is one of many reasons that, according to CNN Money, “The Fed doesn’t care about the unemployment rate anymore”:

“(Federal Reserve Chair Janet ) Yellen outlined several different stats that she keeps on her “dashboard,” including broader measures of unemployment like the U6 unemployment rate, the percentage of workers that are holding part-time jobs when they want full-time work, the labor force participation rate, the quit rate, and the share of unemployed workers who have been out of work for more than six months.”

Job Creators Network understands the danger in basing important policy decisions on incomplete and insufficient measurements of labor market demand and supply. For this reason, and like Fed Chair Yellen, JCN produces its own Unemployment Data Dashboard, updated and posted on our website each month.

You’ll see numbers that reflect the basic BLS unemployment rate as well as the “Real” rate calculated by the Economic Policy Institute which factors in “missing” workers and the “Total” unemployment rate which includes part-time and marginally attached workers. We also include the all-important labor force participation rate, which often is ignored in public discourse of unemployment.

We invite you to keep tabs on our jobs dashboard throughout the year.