Big Red Car here. So The Boss was discussing unemployment with a friend enroute to getting a burger at MightyFine. If you have not been there, then you owe it to yourself to go introduce yourself. Great burgers, great crinkle cut fries and fabulous lemonade. Right up the road in North Austin.
So The Boss and friend are eating those delicious burgers, fries — in all that greasy, salty goodness — and drinking that wonderful fresh squeezed lemonade when the subject turned to the arithmetic of unemployment and the work force.
The Boss indicates that the policy of dropping unemployed citizens from the rolls of the work force — folks employed and folks looking for work — has the impact of dampening the actual rate of unemployment. Understating it. We are talking U-3 here. If you don’t understand U-3 v, say, U-6, then you owe it to yourself to get a handle on it.
Anyway The Boss’s contention looks like this.
Work force: 10,000,000 citizens
Unemployed citizens: 1,000,000
Unemployment rate (U-3): 10% — 1,000,000/10,000,000 = 10%
Now, the government (Bureau of Labor Statistics) decides that anyone who has been looking for 18 months or longer is not really looking for employment and decides to drop them from the work force. We will arbitrarily use 200,000 such citizens for purpose of this example.
Work force: 9,800,000 (10,000,000 – 200,000 = 9,800,000)
Unemployed citizens: 800,000 (1,000,000 – 200,000 = 800,000)
Unemployment rate (U-3): 8.16% — 800,000/9,800,000 = 8.16%
With the stroke of a pen, unemployment has been reduced to 8.16%!
You personally may believe (as does the Big Red Car who never studied calculus) that unemployment is unchanged, we still have 1,000,000 folks looking for work even if the BLS has pencil whipped the numbers.
In the last 4 years, over 5,000,000 unemployed have been eliminated from the work force and unemployment statistics and analysis. Repeat — the current numbers being reported are overlooking 5,000,000 + citizens who are out of work.
In this manner, unemployment — U-3 — has been reported at 7.6% while in reality it is more like 11-12%. This is very, very simple math that nobody really wants to talk about because it does not fit the meme that unemployment is declining. It is not. Absent BLS’s pencil whipping of the folks looking for unemployment for 18 months, unemployment is a disaster. The truth is not pretty on this subject.
Now don’t get me started on U-6 which is arguably the more correct measure of unemployment and is flirting with 20%.
Let me know if you agree with the math. Do you?