The Bureau of Labor Statistics reported on Friday that the official unemployment rate for January was 8.3%, down from 8.5% in December. There were also 243,000 net jobs added during the month of January. But what does this really mean? Let us explore how this is calculated.
The BLS keeps track of six unemployment rates, which are defined as follows:
- U1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force. This rate is 4.9% for January 2012.
- U2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force. This rate is 4.7% for January 2012.
- U3: Total unemployed, as a percent of the civilian labor force (official unemployment rate). This rate is 8.3% for January 2012.
- U4: U3 plus discouraged workers, as a percent of the civilian labor force plus discouraged workers. “Discouraged workers” are those who have stopped looking for work because current economic conditions make them believe that no jobs are available. This rate is 8.9% for January 2012.
- U5: U4 plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force. “Marginally attached” workers are those who would like and are able to work, but have not looked for a job recently. This rate is 9.9% for January 2012.
- U6: U5 plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. This rate is 15.1% for January 2012.
The BLS revised the Current Population Survey, which gathers the data needed to determine these rates, in 1994. Among the changes made, the U3 rate was named the new “official” unemployment rate, instead of the U5 rate.
The use of the U3 as the official definition exposes some holes in the BLS's thinking, because by them, the following are true:
- A person who loses a full-time job but spends one hour each week mowing a lawn for pay is considered employed.
- A person who simply expresses interest in having a job is classified as unemployed.
- “Discouraged workers” are not classified as unemployed or even as part of the labor force.
What this means is that the official unemployment rate can fluctuate in a recovering economy, as discouraged workers (who are not considered to be part of the labor force in the U3 measurement) who re-enter the labor force and do not find jobs will cause the U3 rate to spike. It also means that the U3 rate will go down when people give up looking for jobs, as a record 1,177,000 people did in January.
Ultimately, the official unemployment rate is another example of the use of statistics for deceitful purposes. This is dangerous because the misuse of statistics for the purpose of propaganda brings an entire field of mathematics into disrepute, and that cannot end well. There is too much anti-intellectual sentiment in America already, without causing more by this sort of deliberate abuse.
