Something has always bothered me about the reported US unemployment rate. Last month (September 2022) it was reported at 3.5%. Yet it definitely feels like there are a lot more than 3.5% of the US working age population who don’t have a job.
And this number is one of the key data points (alongside consumer inflation) that the federal government and the Fed Reserve use to guide policy decisions.
But unemployment is expressed as a percentage. Which has both a numerator and a denominator. We tend to think the denominator is roughly constant; in reality it’s been anything but.
US labor force participation rates have been in steady decline since the early 2000s:
Hypothetically, if we were to keep the numerator constant, then unemployment rates would have steadily fallen over the last 2 decades without any change in the number of people with jobs!
This aligns more with my own intuition and observations — clearly there are more than 3-4% of Americans without jobs. Something just doesn’t make sense, and this is one potential factor.
I’ve yet to closely examine data on workers comp benefits and Social Security disability benefits, but my belief is that these probably show rising cumulative enrollments over time as well.
I am just larping as an economist here. But I have increasingly come to distrust our government’s official data, whether on consumer inflation or unemployment. Some of you may say, well, duh.
It reminds me of the old Twain quote, there are 3 kinds of lies: lies, damn lies, and statistics.
If we use this data to make decisions, and the data is bad, then necessarily it follows that the decisions are bad.
Please tweet me and tell me where I’m wrong / what I’m missing.
PS:
Both US #jobs growth and wage increases came in broadly as expected.
The unemployment rate fell as labor force participation declined (the latter being a disappointment given that greater participation and higher productivity hold the key to so much)
Keeps the Fed at 75bpsMore
— Mohamed A. El-Erian (@elerianm) October 7, 2022