Statistical Smoke and Mirrors

Many of us absorb news reports about the effects of the global recession, hoping to relate the details of those reports to our own individual realities. A little over a year ago, despite local and personal evidence to the contrary, Americans were being told that the economy was "strong" and showed no signs of weakening. We all now know that, whether intentionally or unintentionally, we were being misled.

Today we are seeing news stories suggesting that the recession is over, unemployment is declining and the housing market has bottomed out. My own personal reality says otherwise. I haven't been able to sell my house and I haven't been able to find a job, which causes me to question exactly how these things are really measured by "officials."

As an example, let's look a employment statistics. Comparing the number of new claims for Unemployment Insurance benefits in a given month to the number of new claims for UI benefits in the previous month can result in what looks like a reduction in unemployment. In fact, that seems to be the way the official unemployment numbers are being reported. But in reality, that only tells us that fewer new people showed up at the Unemployment Office this month compared to last month. What it doesn't tell us is probably a much better indicator of the health of the labor market -- under-employment.

In economics, the term underemployment has three different distinct meanings and applications. All meanings involve a situation in which a person is working, unlike unemployment, where a person who is searching for work cannot find a job.

Meaning 1: The employment of workers with high skill levels in low-wage jobs that do not require such abilities, for example a trained medical doctor who works as a taxi driver.

Meaning 2: "Involuntary part-time" workers -- workers who could (and would like to) be working for a full work-week but can only find part-time work.

Meaning 3: "Over staffing" or "hidden unemployment", the practice in which businesses employ workers who are not fully occupied---for example, workers currently not being used to produce goods or services due to legal or social restrictions or because the work is highly seasonal.

The U.S. Department of Labor's Bureau of Labor Statistics does provide data that takes labor under-utilization into account. On the BLS website (http://www.bls.gov/news.release/empsit.t12.htm) there appears a table that shows the labor statistics in a variety of iterations. For instance, the first row of the table shows "persons unemployed 15 weeks or longer, as a percent of the civilian labor force," the most familiar to most readers. It shows that in September 2008 that percentage was 2.3 versus 5.3 in September 2009. When the data is adjusted for seasonal factors, those percentages went from 2.4 in September 2009 to 5.4 in September 2009, a small difference.

However, when the measure included "Total unemployed, plus all marginally attached* workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally employed workers," the seasonally adjusted figures went from 11.2 percent in September 2008 to a whopping 17.0 percent in September 2009! The term "marginally attached" is defined as persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

In an October 26, 2009 news story in the San Francisco Chronicle, writer Tom Abate reports that California's already scary 12.2 percent unemployment figure becomes a terrifying 21.9 percent when adjusted for underemployment!