Is the recent drop in the unemployment rate good news or a government conspiracy? The correct answer is neither.
The U.S. jobless rate fell a surprising 0.3 percentage points between August and September to 7.8 percent. Idaho’s seasonally adjusted unemployment rate also fell three-tenths of a point to 7.1 percent.
Many commentators were excited to see an improvement in the labor market, but others suggested the government was manipulating this headline-grabbing number for political gain. Neither group is right.
First, when we consider how unemployment numbers are collected, we are no longer surprised by large changes month to month. Second, when we look behind the overall unemployment rate, the statistics continue to show a weak economy and a weak economic outlook.
The U.S. Department of Labor’s Bureau of Labor Statistics conducts a survey of about 60,000 households each month to estimate the number of U.S. workers. The BLS gets the number of working-age (16 or over) people from census data and then estimates the percentage of this population in what is termed the labor force.
To be part of the labor force, you must be either working (employed) or not (unemployed). To be counted as unemployed, a person must be available to work but unable to find it.
The survey asks, “If you are without work, are you making an effort to find a job?” The BLS says that respondents who made “specific efforts to find employment” over the past month can be counted as unemployed — a fairly vague definition.
With these responses, the BLS then calculates the unemployment rate as the percentage of the labor force that is unemployed. Given the limited size of the survey and the vague definitions of working or looking for work, large changes in the unemployment rate cannot be ruled out. For these and other reasons economists, look at additional employment statistics in the survey.
Changes in the labor force itself are seen by some as a more important indicator. The Idaho Department of Labor’s most recent report says that our state has 720,600 employed and 55,000 unemployed workers, respectively. This is a labor force of 775,600. However, this number has declined by more than 6,000 since May.
Idaho is following a national trend. The total U.S. labor force has grown by 1 million workers over the past four years, but the percentage of the working-age population actually working has fallen 3 percent. This means more than 7 million people across the country have quit looking for work.
But this isn’t necessarily a bad thing. Despite a smaller workforce than four years past, U.S. production is up, and inflation-adjusted incomes are nearly the same.
What is problematic is the number of workers who can’t find the full-time job they want.
To get at this issue, the BLS estimates the number involuntary part-time workers: those age 16 or older working fewer than 34 hours per week but not by choice. These survey respondents say they have been unable to find full-time work because of “unfavorable business conditions.”
Although these workers have jobs, we can say they are underemployed, and the economy is not fully utilizing all its labor resources. As of September, the BLS says there are more than 8.6 million involuntary part-time workers. This is nearly double the number of such workers before the recession. Even worse, the number rose by almost 600,000 workers between August and September.
These data show the economy is simply not living up to its potential. The labor market is truly in bad shape when workers are willing to work more but employers have nothing for them.
The current unemployment rate isn’t good news and isn’t a government conspiracy. But employer uncertainty over government policy is high. I guess that is what elections are for.
Peter Crabb, Professor of finance and economics at Northwest Nazarene University in Nampa.firstname.lastname@example.org