(Updated) Bad jobs report: We’re losing workers

UPDATE: In two places below, I implied that the formula for unemployment rate had been altered over the years (true enough) and that the motive was to “sweeten” the employment news for political benefit. Dean Baker, whom I trust and quote throughout this article, offers the following comment via email.

He begins by addressing the difference between the way unemployment was measured during the Great Depression and the way it’s measured today, then comments on the state of the U.S. statistical agencies in general. Baker writes:

The issue in the 1930s is that the government workers on projects like the WPA and CCC were counted as unemployed. This would not be true today. 

I think the BLS [Bureau of Labor Statistics] has mostly been pretty kosher in dealing with the data. The statistical agencies in the U.S. have been largely free of political interference and that is something that we should be thankful for.

There are problems with the data, which people like me bitch about all the time, but they are often inherent in the data (some people don’t answer surveys or don’t answer the way we would like) or the result of inertia. Rarely can I identify situations in which BLS or one of the other statistical agencies fudged data to make a politician happy.

I trust Baker’s judgement as well as his political insight; he sees both politics and economics clearly, so I offer this as an offset to my cynicism. I’ll try to find the sources that gave me the impression I’d formed. In the meantime, consider the above as more definitive.
________

The September 2013 jobs report is out, and the news isn’t good. Even though the unemployment rate is down, the number paints a false picture. Unemployment is down because people are leaving the workforce as fast as others are joining it. (For a more detailed justification for that last sentence, jump to here.) In other words, we’re going nowhere.

From Dean Baker at CEPR.org:

The unemployment rate edged down to 7.2 percent in September, the lowest level since November of 2008. The Labor Department’s establishment survey showed a gain of 148,000 jobs. … In spite of the September drop in unemployment, the employment-to-population rate (EPOP) remained unchanged at 58.6 percent.

Unless my math is bad, there’s only one way to read those two facts — in a month that saw nearly 150,000 join the work force, enough people left it to keep the total employment rate unchanged.

Evidence? Here’s Baker on the September employment-to-population ratio (my emphasis and paragraphing):

This continues the pattern that we have seen throughout the recovery as the unemployment rate falls mainly because workers leave the labor market.

The unemployment rate is now down by 2.8 percentage points from its 10.0 percent peak in October of 2009. However, the EPOP is up just 0.4 percentage points from its low point in June of 2011. Over the last year the EPOP actually edged down by 0.1 percentage point, while the unemployment rate dropped by 0.6 percentage points.

This drop in labor force participation is now occurring at an equal pace among men and women, with the participation of both dropping 0.5 percentage points in the last year.

More fascinating details here.

Looks like we’re going backward to me, at least a little, in this so-called “recovery.” Note the second bolded sentence. Over the last year, while the so-called “unemployment rate” is down, the more accurate “employment rate” is also down. Despite what the unemployment rate tells you, the number of new workers is not keeping up with population growth.

Here’s what that looks like historically:

Civilian employment, 1948 thru September 2013

Civilian employment, 1948 thru September 2013

Shorter employment story — we lost more workers in September than we needed to grow the employed population. Jobs growth is flat. And in the last year we’ve gone somewhat backward overall.

A word about Unemployment Rate and Employment Rate

As you can see from the data above, someone’s painting a false picture, and it’s the so-called “unemployment” rate. Here’s why. Both the Unemployment Rate and the Employment-to-Population Rate are ratios, but they measure different things using different data sets.

In fact, the only thing they have in common is “total workers” — the total number actually employed. Here are the formulas.

Unemployment rate. According to Wikipedia:

“The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.”

“Labor force” can have a variety of meanings. In the U.S. it includes only those working plus those “actively” looking for work. Thus the formula is:

Total “labor force” — Total workers
_______________________________________

Total “labor force”

The trick is in the definition of “labor force.” No government wants to report a higher unemployment rate than it has to. Since the numerator (the top number) will always capture all of the employed (the “total workers” part), the key if you’re into fooling people is to make the bottom number (the denominator) smaller. That will shrink the whole fraction. (If you like, test it and see.)

(Of course, the real key to a lower unemployment rate is to provide more good work for more people. But hey, you go to war with the statistics you have, not the ones you want.)

Hidden unemployment. The tendency to redefine “labor force” as a smaller number for political gain produces “hidden unemployment“:

Hidden, or covered, unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics, due to the way the statistics are collected. In many countries only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government “retraining” programs) are not officially counted among the unemployed, even though they are not employed. …

The statistic also does not count the “underemployed“ – those working fewer hours than they would prefer or in a job that doesn’t make good use of their capabilities. …

As CNN puts it:

The unemployment rate only includes jobless people who have searched for work in the last four weeks. It skips over those who left the labor force entirely because they retired, went back to school, or simply gave up on finding a job.

To get a more accurate picture, we need to look at actual employment, not so-called “unemployment.”

Employment-to-population ratio. Comparing total workers to total adults in a population gives a more accurate picture, since no government will understate the worker numbers, and population numbers are much less fiddleable than “labor force”. Here’s the definition:

[The employment-to-population ratio] is a statistical ratio that measures the proportion of the country’s working-age population (ages 15 to 64 in most OECD countries) that is employed. This includes people that have stopped looking for work.

The formula is therefore:

Total workers
___________________________________________

Total “civilian non-institutional” working-age adults

The various definitions are here if you’re interested. The key one is “civilian non-institutional” population.

How this applies to this month’s jobs report

This kind of math comparison can hurt your head — there’s little in common between these ratios — so let’s walk through it to see what happened in September. What we say here will, in general, be true of every jobs report — that is, the movement in the ratios will reflect the same dynamics.

1. The only thing the two ratios have in common is “total workers”.

2. When unemployment goes down, it means that either “total workers” went up, or “labor force” went down, or both. The opposite is true when unemployment goes up. (Crossing a boundary where “labor force” is being redefined brings its own special problems. That didn’t happen here.)

3. When employment (EPOP) goes down, it means that population rose faster than total workers (and the reverse when EPOP goes up).

4. When EPOP stays flat, it means that total workers changed at the same rate as population. Both either went up together (as here) or both went down together.

Combining these concepts, in September 2013 the number of “total workers” as a percentage of “labor force” went down, but the same number as a percentage of population stayed the same.

So the real change in September is the change in “labor force” (in the unemployment equation) versus the change in population (in the EPOP equation). Population went up in September and “total workers” went up by the same percentage. To get a smaller unemployment ratio, “labor force” went down.

In other words, we went nowhere.

GP

To follow or send links: @Gaius_Publius


Gaius Publius is a professional writer living on the West Coast of the United States. Click here for more. Follow him on Twitter @Gaius_Publius and Facebook.

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  • Jonny

    Agreed!

  • perljammer

    Gaius was using the definition used by the Organization for Economic Co-operation and Development (OECD), which is ages 15 – 64. The Bureau of Labor Statistics uses ages 16 and up, without distinguishing people who have retired — I find that a little curious, as it counts retired persons as members of the labor pool.

  • Jonny

    I don’t see anywhere where the BLS says they stop the age at 64 for the employment-population ratio in the US. Do you? I don’t think they do, and so I do think that as the baby-boomers retire, there is a downward pressure to the ratio that’s also possibly skewing the numbers. We can combine some of their figures to back into the real 15-64 ratio (wouldn’t 25-64 be better, to account for those still in school?) but it’d be nice if they would do it for us!

  • Bill_Perdue

    They didn’t call him Slick Willie just because of Monica Lewinsky’s stained dress.

  • http://www.americablog.com/ Naja pallida

    In fairness, India has more of our jobs than Mexico or Canada. ;)

  • perljammer

    “NAFTA means jobs. American jobs, and good-paying American jobs. If I didn’t believe that, I wouldn’t support this agreement.” — Bill Clinton, while signing NAFTA into law in 1994.

  • Monoceros Forth

    Keep an abnormal situation going long enough and it becomes the new normal. I think that’s what’s happening. More than once in the past several months I’ve read stories in the local papers that are, basically, all about adapting oneself to worsening circumstances. Housing too expensive in Seattle? Eh, what can you do about it, just move further away, everyone’s doing it, it’s no big deal. You can’t get a job? Pfft, just retrain yourself for a different one. (As if that worked at all!) It all adds up to a general attitude that soaring expenses and a horrible job market are merely ordinary inconveniences to be accepted and worked around, not symptoms of a disease that needs immediate treatment.

  • http://www.rebeccamorn.com/mind BeccaM

    I look at that chart above, the timeline one and see how the current employment rate now is what it was more than 30 years ago.

    The mid 1970s is when women really began entering the workforce in large numbers. Hence the big jump in overall employment. During the first Reagan ‘double-dip’ Recession, we were usually the first to be let go (due to lack of seniority), hence a fast drop back to the original numbers.

    Then in the 80s up through 2000, mostly a climb except for the recessions. Even the Bush II recession employment dip wasn’t that far out of range from previous recessions. It was actually a little less of a hit than the Reagan recession.

    Then we get to the Bush II economic crash of 2008, when suddenly 5% of the workforce just disappears. Only this time, in addition to women, it’s seniors and young adults who can’t get jobs.

    We’ve already had four straight years of employment stagnation, which is longer than the post-recession stagnation of 1960. And no end in sight, either.

  • http://www.rebeccamorn.com/mind BeccaM

    The national Bureau of Labor Statistics does surveys. It’s their purpose.

  • perljammer

    Christ. Don’t you just love it when prospective employers make assumptions on your behalf, and then use those assumptions to decide not to extend an offer of employment?

  • ArthurH

    I once was invited for a job interview that was cancelled a half hour later. The HR person, reacting to my demands of why the interview was unscheduled, admitted that the parent company budgeted the job at a certain dollar amount. My take-home salary would be what was left after the healthcare benefit cost was deducted. As I would (if hired) be earning less per year than the two younger people whom I’d be the boss they thought I’d feel disrespected if I found out and I’d leave for a better job! The employee contribution was the same for all, but the employer was charged more for older employees and simply was absorbing the added cost.

  • Indigo

    And to think that there are pundits who have not yet grasped the obvious fact that we’re muddling our way through the Second Great Depression. You know how they do that? They redefine the word “depression” mathematically to prove that this ain’t it. Once again, these are subjective situations: when your neighbor’s hurting, it’s a recession; when you’re hurting, it’s a depression. A little honesty past the arithmetic could help clarify what’s going on.

  • Russ

    Just how is data collected on those who are “looking for work”? If I were unemployed and collecting unemployment, I would have to report weekly whether or not I’m “looking for work”. Once my unemployment benefits expire, nobody is going to ask me whether or no I’m “looking for work”. So, how can this possibly be a factor?

  • perljammer

    What you say is entirely true, but it is irrelevant to the point. When an individual turns 65, they exit “the working-age population (ages 15 to 64 in most OECD countries)”, and thus disappear from Gaius’ formula for employment-to-working-age-population ratio. Whether that individual is retired, or working, or forced into unemployed, just doesn’t figure into the numbers. This is a flaw in the formula, but there it is.

    As to your point about being denied employment due to pre-ACA insurance costs — I don’t know what the prevalent practice is, but my employer’s plan does not differentiate rates based upon age. A 65 year old employee pays the same, and the employer’s contribution is the same, as the rate for a 25 year old for any given plan option.

  • ArthurH

    Not necessarily. A good number of Baby Boomers had their 401K plans diminished during the 2008 economic meltdown. Others found themselves tossed out of their jobs well before retirement age and despite sellable skills were denied employment because the employer didn’t want to pay more for their pre-ACA health insurance benefit. Finding themselves in no financial shape to retire, they are continuing to work as independent contractors or part-time jobs past retirement age, thus filling what work might be available to younger people had the older folks not been financially hurt.

  • Bill_Perdue

    Excellent comment. Thanks GP.

    The deliberate refusal of Democrat (and Republican) politicians to do anything meaningful about long term unemployment, poverty and homelessness is destroying the economy. Workers as a class cannot buy and consume the products and services they create with their labor.

    Likewise the promotion of underemployment and the creation of tens of millions of low wage, low hours, no benefit jobs by Democrat and Republican politicians who’ve engage in union busting and promoted the export of union jobs since the Carter Administration causes the weakness of the economy and dooms it to periodic sharp crises.

    The rich, as they always do, recover but absent a strong union movement, weakened by every administration since and including Carter, workers are not part of the recovery. That will get much, much worse when Obama’s TTIP, Trans-Atlantic Trade and Investment Partnership and TPP increase income inequality and the number of jobs decimated by stagnant and declining wages. That was exactly what happened with NAFTA, which Reagan, Bush and Clinton touted as a step forward which, instead, increased pauperization, principally in Mexico and the US.

    The only viable solution for workers is to leave the Democrat and Republicans parties, controlled by our enemies, form workers parties and then a workers government.

  • perljammer

    The denominator in your last equation is going to shrink over the next 17 years, as the boomer population ages and the country’s demographics shift. An average of 1000 baby boomers are turning 65 every day, and that rate of 365,000/year will continue through 2030. Now, since the trend is for people to put off retirement, this doesn’t mean that a job opens up every time someone turns 65; however, they do exit “the working-age population (ages 15 to 64 in most OECD countries)”.

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