Rounding the Unemployment Rate

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President Obama’s chief economic adviser Alan Krueger has gained a certain bit of infamy for rounding the unemployment rate: “More precisely, the rate rose from 8.217% in June to 8.254% in July,”Krueger wrote on the official White House blog, adding: “Acting BLS Commissioner John Galvin noted in his statement that the unemployment rate was ‘essentially unchanged’ from June to July.”

This is stupid.  There are good reasons the unemployment rate is only reported to one decimal place.  Even with a sample of 60,000, there is a statistical estimation error. (See below for a more complete description from the Bureau of Labor Statistics. Contrary to popular opinion, claims for unemployment benefits are not used because those figures ignore unemployed people whose benefits have run out.) Prof. Krueger should know better.  (Of course, he is infamous as the co-author of a badly flawed paper that purported to show increasing the minimum wage lowered the unemployment rate.[1])

This blog is about data.  So let’s look at some recent allegations and see how they stack up. (As always, my methodology and data are transparent.  Click here to download an Excel workbook containing everything I’ve used to support this post.)

One claim is that the unemployment rate would have been much higher if discouraged workers had been included.  Discouraged workers are:

“Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.”[2]

In June, 2012 there were 821,000 discouraged workers.  That figure increased to 852,000 in July.  Here’s a summary of the unemployment rates:

 

Jun-12

Jul-12

Unemployment rate as reported

8.217%

8.254%

Unemployment rate including discouraged workers

8.700%

8.755%

So including discouraged workers raises the unemployment rate by about 0.5 percentage points.

But there’s a second category of interest under the heading “Not in labor force.”  That is “marginally attached workers” defined as:

“Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.”[3]

That’s quite a mouthful.  Let me summarize. Marginally attached workers are really, really discouraged workers.  If we include marginally attached workers, the picture gets considerably worse:[4]

 

Jun-12

Jul-12

Unemployment rate as reported

8.217%

8.254%

Unemployment rate including marginally attached workers

9.662%

9.726%

Look, folks, unemployment rates above 8% are simply unacceptable.  The government screwed up the first stimulus by not shoveling the spending out the door fast enough. They then proceeded to issue so many new regulations (including those issued, proposed, and feared) that businesses have no idea what the future cost of new employees will be.  Meanwhile, the Obama administration insists on increasing taxes on those with incomes over $250,000 per year.  Best estimates are that the proposed new taxes would raise between $35.4 and $37.1 billion.[5]  This amount is pocket lint compared to our $1,500 billion budget deficit.  (If you’re looking for an explanation of the difference between the budget deficit and the government debt, here’s something I wrote a while back.)  Talk about fiddling while the economy burns.

I’ve said it before and it bears repeating: an unemployment rate over 8 percent is no time to raise taxes.  Anybody’s taxes.  Period.  The Democrats should get over their obsession with “fairness” and admit that the tax increase they’re insisting on isn’t worth squat.

 

 



[1] Card, David; Krueger, Alan B., “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.” Economics of Labor and Employment Law. Volume 2., 2007, pp. 5-26, Elgar Reference Collection. Economic Approaches to Law, vol. 12.. Cheltenham, U.K. and Northampton, Mass.: Elgar

[2] http://www.bls.gov/bls/glossary.htm/#D Accessed August 5, 2012.

[3] http://www.bls.gov/bls/glossary.htm/#M Accessed August 5, 2012.

[4] Being careful, of course, to not double-count discouraged workers.

[5] Tax Policy Institute (data from Joint Committee on Taxation, U.S. Congress).  Available at http://taxpolicycenter.org/numbers/displayatab.cfm?Docid=3463&DocTypeID=5 accessed August 5, 2012.  Also included in the Excel workbook for this entry.