Reindexing The Unemployment Rate By America's Population Growth Yields Some Ugly Results

[Joanne98]

One of the more peculiar phenomena in the current Great Recession has been the persistent drop in the Civilian Labor Force Participation Rate, after averaging around 66.5% for the past 20 years, in the past 18 months it has plunged, and despite a marginal improvement over the past several months, is still at 65.2%. This is counterintuitive when one analyzes the data side by side with the overall civilian population in the United States. An indexed chart, using the January 2000 level as a baseline demonstrates that while the US population has been climbing at a fairly steady arithmetic growth rate, the civilian labor force, which should track the changes in the actual population, has been behaving in an erratic pattern, having more to do with BLS data interpretation and the nuances of the business cycle than demographics. Which is why when reindexing data for nominal changes in the US rate of population growth, yields some troubling variations from the just disclosed 9.9% unemployment rate. Basing the adjustment to the unemployment rate on nothing but a statistical regression to the growth of America over the past ten years, would yield an unemployment rate of 12.7%. More troubling is that the underemployment rate would be a number far higher than the 17.1% disclosed for April. According to our calculations, a reading closer to 22% would be more appropriate to represent the level of real joblessness in the US. A number, which is higher than the corresponding metric in austerity-ridden Spain.

First, we demonstrate the labor force participation rate. The most recent disclosed reading of 65.2% is materially different from the 20 year average of 66.4%.

http://www.zerohedge.com/article/reindexing-unemployment-population-growth-yields-some-ugly-results

Charts at link

[pleah]

1. k&r

http://www.asherheimermann.org

[Go2Peace]

2. Real unemployment when pop growth is added - 35%? Somebody please find a problem in the analysis!

I just looked over his analysis, if it is correct it is incredibly frightening. Is there someone who is statistically minded who can look this over? It seems a reasonable calculation?

[westerebus]

4. That's not what it says.

The indication is the total UE is closer to 13%, not 10. You don't count children or the elderly to get to the UE rate.

The BLS has been playing with the numbers. The birth/death rate is used to decrease the real rate of UE.

There are simply more people then the BLS wants to count. That's all it's saying.

[econoclast]

3. Reindexing argument is a fallacy!

I can debunk this reindexing argument. The reason labor force participation is decking has little to do with statistical manipulation and everything to do with the aging of the population. Looking at BLS statistics by age one sees that for age groups between 25 and 55 years old, labor force participation is about 83%. After age 55 labor force participation drops precipitously to about 45%. So as the population ages, and a huge segment of the population reaches 55+, their labor force participation drops and, on average total labor force participation declines. While it is true that older people recently have been working longer, their labor force participation rate is nowhere near the 83% of younger groups.

Hence the argument that we should reindex is just hogwash. It is trying to "adjust" away something that is a genuine demographic fact.

[westerebus]

5. Like not counting 16 to 25 year olds? n/t

[econoclast]

6. To calculate the unemployment rate....

You need to know two things

A - how many people have a job

divided by

B- the size of the labor force

that gets you the the percentage of the labor force employed.

Take that percentage and subtract it from 100% to get the Unemployment Rate

the reindexing argument centers around B. The argument is that the trend downward in the size of the labor force is not "real". That if we re-jigger the size of the labor force UP to reflect the average of the last 10 years rather than the declining trend, you get a smaller percentage of the labor force employed ... And hence a larger percentage unemployed.

I'm saying that the proposed "re-jiggering" to the average is wrong! Because the population is aging, and as more and more folks fall into that 55+ cohort, their participation in the labor force declines. THAT is why the trend for labor force participation is declining. It really is "real" and shouldn't be "adjusted away"

if you believe that the BLS plays games with the numbers, I can't say that I blame you. They probably do. But that is small potatoes compared to the overall demographic trend. And it is this demographic trend that the reindexing argument wants to "adjust". That won't fly.

[westerebus]

7. I agree there is an aging population.

The 55+ boomer generation isn't getting any younger. That said, I don't see a decline in job seekers in that age group. I do see large scale UE that limits options in that cohort. Primarily under employment or early retirement to keep an income stream going.

At the same time, the lack of hiring in starting positions hampers the other end of the age spectrum. Increasingly, both ends are competing for the low end.

It is not so much the decline in the total work force number that concerns me. It's the decline of job growth available to the 25-45 year olds. That for the most part is the base of production and growth in the economy.

As George Carlin said: not every kid is going to medical school. They still need jobs.

As the population ages, the expectation was there would be more jobs available. That's not happening.

What I think this adjustment speaks to is the over all decline of jobs available given the population rate. That's just my take.

[jtuck004]

8. Participation is actually increasing in the ages 55-64

Recessions marked with R's - prior to 2001 that was true, but for 2001 and this depression recession, the following data would indicate that age 55-64 are actually increasing their participation. They have to. For most people their home is their retirement, with some retirement fund. Both of those resources have been devastated, so many have no choice but to at least try to work.

:
Labor Force Statistics from the Current Population Survey
Series Id: LNU01300095Q
Not Seasonally Adjusted
Series title: (Unadj) Labor Force Participation Rate - 55-64 yrs.Labor force status: Civilian labor force participation rate
Type of data: Percent or rate Age: 55 to 64 years


Year Qtr1 Qtr2 Qtr3 Qtr4 Annual

1973 59.1 58.3 58.0 58.1 R
1974 58.7 58.1 57.4 57.1 R
1975 57.8 57.2 56.8 56.9 R
1976 56.9 56.3 56.4 56.7
1977 56.4 56.4 55.7 56.8
1978 56.2 56.2 55.8 56.8
1979 56.7 55.9 55.9 56.5
1980 56.0 55.9 55.5 55.4
1981 55.4 55.4 54.6 54.7 R
1982 54.7 55.1 55.2 55.2 R
1983 54.7 54.4 54.1 54.8
1984 54.2 54.4 54.0 54.3
1985 54.1 54.3 54.0 54.3
1986 53.4 54.1 54.2 54.5
1987 53.9 54.4 54.0 55.3
1988 54.3 54.3 54.3 55.3
1989 55.2 55.5 55.2 56.3
1990 55.6 55.5 55.9 56.6 R
1991 55.4 55.4 55.5 55.6 R
1992 56.0 56.6 56.4 55.9
1993 56.5 55.8 55.8 56.3
1994 56.6 56.6 56.2 57.6
1995 57.2 56.8 57.1 57.7
1996 57.7 57.5 57.9 58.4
1997 58.5 58.7 58.6 59.8
1998 59.3 59.2 58.8 59.8
1999 59.5 59.2 59.2 59.4
2000 59.7 58.9 59.0 59.4
2001 60.1 60.3 60.2 61.0 R
2002 61.5 61.5 61.8 62.9
2003 62.6 62.3 61.8 63.0
2004 62.8 61.9 61.8 62.7
2005 62.6 62.9 62.9 63.3
2006 63.5 63.7 63.6 64.0
2007 63.8 63.5 63.8 64.1 R
2008 64.8 64.1 64.0 65.3 R
2009 65.3 65.4 64.5 64.4 R
2010 65.0 R

CIA factbook,(2009 est.) population
0–14 years: 20.2%
(male 31,639,127/female 30,305,704)
15–64 years: 67.0%
(male 102,665,043/female 103,129,321)
65 years and over: 12.8%
(male 16,901,232/female 22,571,696)

The BLS does adjust numbers, as do most researchers. (consider the difficulty in determining how many people are still alive that were born in '62). And while there are arguments about their methods, and arguments about the arguments, one can look at Gallup, ADM, other sites and come up with data that helps clarify. But are those adjustments making it more accurate, or telling a story that benefits someone? The fact is that just shaving a bit off a decimal number does in fact make the unemployment rate look far better. Who would benefit?. A president who spends a decade in bed with corporations while creating less new jobs than the number of people who enter the workforce, a new president who comes in shipping money in boxcars to health insurance companies and banks while sending a few scraps to working people - I can see why either of those would rather see the unemployment rate lower than it actually is. Does that mean they are actively controlling it? I doubt it. But if people are unemployed, homeless, no telephone, no address, and discouraged, what effort is in place to make sure and count them? And if they are missed, the numbers look much better. And who benefits...?

I suspect the situation is, in fact, far worse than most people realize. And there is every reason to believe it is going to get worse, for a long time.

This was touched on at: http://globaleconomicanalysis.blogspot.com/2009/11/mish-unemployment-projections-through.html
It includes a spreadsheet for job creation you can download and put your own numbers in. While I think his politics are shortsighted and selfish, I don't think the conclusions the data leads to are wrong. We have to create 100 to 125 thousand jobs a month just to keep even, more than that to sop up the over 27 million currently un- or underemployed. Anyone see who is going to be hiring 200 to 300 thousand people for permanent jobs that pay a living wage anytime in the next 10 years? Even jobs that don't? See anyone building new Home Depots, Starbucks, Walmarts - new, not replacing old ones or ones that have been shuttered?