Monday, December 7, 2009
On That Misleading Unemployment Rate Statistics (Once Again)
The employment survey indicated the number of people working fell but then the household survey showed a lower unemployment rate. While some say this is good news, the best I think we can say is that it does not suck as much as what we saw in terms of changes in prior months.
The phenomena of a falling unemployment rate during a period when the employment survey shows a decline can be attributed to a couple of possibilities both of which were present during November. The household survey showed an increase in employment even if the employment survey indicated a decline. Some labor market economists would argue that the employment survey is a more reliable indicator of recent labor market developments. But we should also note that while the household survey suggested an absolute increase in employment, the employment to population ratio (graphed as EP) remained at a paltry 58.5 percent. So why did the reported unemployment rate decline – because the labor force participation (LFP) continued to decline. Yes – the unemployment rate has skyrocketed since 2006 but the real message is that the decline in the labor force participation rate masks the horrific decline in the percentage of the employment that is employed.
On a political note, however, this administration isn’t exactly crowing about how wonderful the labor market is (recall the previous administration often cheered whenever the reported unemployment rate showed even the slightest dip) as it is willing to admit we need to do a lot more to stimulate this economy and put people back to work.