Monday, September 10, 2007

Can we Trust Unemployment Data?

The first step to understanding why unemployment data might be unreliable, and that it is not telling the whole unemployment story, is to first understand how unemployment is measure. Each month, the BLS surveys about 50,000 households, surveying individuals over the ages of 16 that are not institutionalized. These individual are then assigned to one of three groups:

1) Employed: People who worked full-time or part-time during the past week (or was on sick leave or vacation from a job.)

2) Unemployed: if the person didn’t work during the past week but looked for work during the past four week.

3) Not in the labor force: If the person didn’t work during the past week and didn’t look for work during the past four weeks.

This is the definition used to collect unemployment data in the US. From this, we can make four obvious observations about the data that induce it to tell a misleading story.

1) Part-time work and full-time work are very different.

2) The data does not account for illegal immigrant workers, or those that work in the illegal sector of the economy.

3) The data does little to account for individual that have temporary been to discourage to look for work after so many fail attempt.

4) People can lie on the survey to make themselves look better.

For the first point of observation, part-time work is not the same as full-time work. However, under the current definition for measuring unemployment, both kinds of work are treated equally. This is misleading because if an economy have a lot of part-time workers and few full-time workers, then the health of the economy would not be as good as the unemployment data would show.

If we use the 2006 Part Time Data from the BLS, we can see how significant part-time worker are to the labor force. Just looking at the January 2006 data, we see that there are 139,512 workers in nonagricultural sector and 1,970 workers in the agricultural sector. Part-time worker for Jan. 2006 equal 24,505 for all industries, and 24,058 among nonagricultural industries, that is 17% of the workers are part-timer. Among the part-timers, about 20% or 1 in 5 is part-time due to economic reasons. This percentage is consistent for almost every month in 2006. One in five workers are working part-time is a pretty significant among, and when they are treated equally as full-time workers for unemployment data, the data seem to exaggerate the health of the economy and employment, or at the least, it is not fully accurate in representing the state of unemployment.

The next point of observation deals with those that are not included in surveying unemployment. For illegal immigrant or those that are working illegal jobs, they are not considered as part of the labor forces. Nevertheless, their works and labors still contribute to the overall state of the economy. But if a surveyor was to ask a drugs dealer if he is currently employed, or has he been looking for work in the last four weeks? The drugs dealer would certainly not report that he is employed as a dealer, or he been look to enter into the drugs dealing business. The same can be said for illegal immigrants that are working and hiding from the US government.

Data on illegal immigrant living in the US can be obtain from Homeland Security. However, the statistical data could very well be undercounting the actual number of illegal immigrants living in the US because collecting such data is more than just difficult, and it could very well be alter to make Homeland Security look better. The data show that there were about 5 millions illegal immigrants living in the US in 1996, and the number was growing at about 270,000 a year by in 1996. This data show that there are some 5 millions plus individuals not accounted for in the unemployment data. Add in all those that are working illegal jobs of various nature, and we are talking about a huge hole in the unemployment data. This again shows why official unemployment data can be uncertain.

The next point of observation deals with people that are just sick and tired of rejection, of others criticism them, and constantly being told that they are not good enough. These individuals might decide to take a temporary break from job hunting to regroup before heading out to hunt again. They might decide to take a month off from searching to reorganize themselves, and repackage their selling points. People that had became to discourage to continual looking for work might take a temporary break, or people might take a break to find new way to package themselves for potential employers. In either case, under the current way of collecting unemployment data, these individuals might very well be categories as “not in the labor force.” In both situations, the people wanted job, they are willing and ready to go to work, but they just could not find a job. However, if they are considered to be “not in the labor force,” instead of “unemployed” then the unemployment data again is not accurately stating the state of unemployment. This again shows why official unemployment data can be uncertain.

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