01 January 2010
Doubting the Jobless Rate
The “Ahead of the Tape” column in the December 31, 2009, Wall Street Journal highlights a perennial mystery of the Department of Labor’s unemployment rate statistics. As I interpret Mark Gongloff’s explanation, the rate is calculated as the fraction of the country’s active work force that is drawing regular or extended and emergency unemployment benefits. When a worker stops drawing benefits, he is dropped from both the numerator and denominator of that fraction. The result is a reduction in the nation’s unemployment rate without adding to the number of the nation’s wage-earners.
In most cases, when the economy recovers, workers who have been dropped from the active work force compete again for jobs. As they return to work, their number is added to the active work force, increasing the denominator of the unemployment rate fraction while leaving its numerator untouched. The result is also to reduce the nation’s unemployment rate although not as remarkably (i.e. with a lower delta) as if the previous unemployment rate had not already been reduced when the worker’s benefits had run out.
The mystery is that for some reason (politically motivated statistical manipulation?) unemployment is measured so as to moderate the desperate appearance of economic slowdowns, even though the effect is to obfuscate the speed of economic recoveries. Is this just a case of saving the public from its own tendency to panic? Or is this Department of Labor statistical methodology kept in place for the benefit incumbent federal administrations regardless of political party?
The “Ahead of the Tape” column in the December 31, 2009, Wall Street Journal highlights a perennial mystery of the Department of Labor’s unemployment rate statistics. As I interpret Mark Gongloff’s explanation, the rate is calculated as the fraction of the country’s active work force that is drawing regular or extended and emergency unemployment benefits. When a worker stops drawing benefits, he is dropped from both the numerator and denominator of that fraction. The result is a reduction in the nation’s unemployment rate without adding to the number of the nation’s wage-earners.
In most cases, when the economy recovers, workers who have been dropped from the active work force compete again for jobs. As they return to work, their number is added to the active work force, increasing the denominator of the unemployment rate fraction while leaving its numerator untouched. The result is also to reduce the nation’s unemployment rate although not as remarkably (i.e. with a lower delta) as if the previous unemployment rate had not already been reduced when the worker’s benefits had run out.
The mystery is that for some reason (politically motivated statistical manipulation?) unemployment is measured so as to moderate the desperate appearance of economic slowdowns, even though the effect is to obfuscate the speed of economic recoveries. Is this just a case of saving the public from its own tendency to panic? Or is this Department of Labor statistical methodology kept in place for the benefit incumbent federal administrations regardless of political party?
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