Understanding the Unemployment Deception

Mac Slavo
SHTF

Yahoo! reports, and the mainstream media parrots, that the “unemployment rate is sinking at the fastest pace in half a century because a surprisingly large number of people say they’re finding work.”

The unemployment rate dropped sharply last month to 9 percent [down from 9.4%], based on a government survey that found that more than a half-million people found work.

...The unemployment rate has fallen by eight-tenths of a percentage point in the past two months. That’s the steepest two-month drop in nearly 53 years.

Buried within the report, outside of the view of home page lead headlines, is this important item of interest:

But part of that drop has occurred as many of those out of work gave up on their job searches. When unemployed people stop looking for jobs, the government no longer counts them as unemployed.

The number of people who have given up looking rose to 2.8 million last month, from 2.6 million in December.

We can expect to see leg tingling excitement amongst mainstream pundits struggling to hold on to the Bernanke-Geithner-Obama narrative of recovery, as they grasp for any semblance of statistical evidence to show they’ve been right all along and that you should be heading to Disney World with the kids the minute weather conditions improve. Never ones to delve into the possibility that the algorithmic analysis and surveys used by the Bureau of Labor and Statistics and our government might not tell the whole story, 9.0% will be blindly touted by the best and brightest as evidence of success for the estimated $23 Trillion in stimulus, bailouts and monetary expansion which have prevented another catastrophic financial and economic collapse.

The reality, however, is starkly different from the perceptions being created by the power elite who are attempting to prevent Egyptian style political uprising and civil unrest in the U.S.

While the majority of Americans will take this latest report as a sign that things really are getting better, even if the data are skewed and manipulated, we subscribe to the musings of Horace (65 BC - 8 BC), who said naturam expellas furca, tamen usque recurret - You can drive Nature out with a pitchfork, but she’ll always come back.

Karl Denninger points out just some of the machinations in the latest government (un)employment situation:

There’s no love in here. Worse, the benchmark revisions are out, and they show about 300,000 supposedly-reported jobs that didn’t really happen. No, really? How come that number seems to always be in this direction? That is, why is it that the BLS always seems to over-report reality in the establishment survey?

That inconvenient truth, incidentally, is why I always use the household numbers. They’re at least a real survey without BS “adjustments” applied and while they’re subject to sampling error at least they’re not intentionally distorted.

...This officially sucks.

On a month-by-month basis the number of actual employed people dropped by more than 1.5 million! That’s a huge decrease and what’s worse, the trend is awful, being unbroken now since the first of last year.

It looks like someone in the administration needed to show some positive numbers, truth be damned. Someone, for some reason, decided to throw in a few hundred thousand extra jobs. We’ve seen this before, and eventually those numbers will come out in the open. One example of this was an official adjustment of the 2009 unemployment numbers, which indicated that the BLS overstated the amount of people employed that year by some 675,000.

The manipulations are nothing new. The powers that be can continue to play with the numbers, and assuredly, they will. But in the end, nature will take hold and reality will hit us like a sledgehammer.

Mainstream information outlets prefer to avoid looking at the real story - perhaps it’s too complex for the average prole - but for inquiring minds willing to do some basic arithmetic, the reality is readily available. The Yahoo report above says that we are having a record breaking employment growth cycle, as job losses decrease at a rapid pace. The record they didn’t talk about is the one that really matters:

Probably the last chart to bury any doubt about just how truly horrible today’s employment data was, comes from a little observed data metric: that showing the number of people who are not in the labor force, but who want a job now. The number just hit 6,643K, a jump of 431K from December, and the highest number in history. These are people that would send the unemployment rate to about 12.8% if they were in the labor force (and, as indicated, looking for a job). Nothing else needs to be said.

Source: Zero Hedge

Now you see how it’s done.

The official rate should be at least 12.8%. The 9.0% unemployment rate does not include those people who are now considered to be “out of the labor force” because they have stopped looking for work.

Maybe, just maybe, they’ve stopped looking for work because there are no meaningful jobs left in America. Maybe it makes economic sense for them to stay home and collect the unemployment insurance benefits to which they have contributed their entire working lives. For someone that had a job paying $100,000 year before the economic crisis, doesn’t it make sense, financially, to collect as many benefits as possible rather than losing those benefits by taking a minimum wage job working a cash register at a Chinese product distribution warehouse? Many of those on unemployment are making the right financial decision by collecting more than a paycheck would provide, not only via a weekly insurance distribution, but by accessing other benefits that include state funded health care, food benefits and support with utilities.

Not many media pundits will talk about that as the reason why people have stopped looking for work. Nor will they discuss the many millions of people who, once their benefits expire after 99 weeks, will no longer be counted as looking for work. They just kind of disappear into a singularity - one in which they are not counted as employed or unemployed. They, for all intents and purposes, don’t exist anymore.

Using this type of mathematical approach, the government could potentially see continued drops in unemployment indefinitely. Potentially, we could have more employment than we have people if they work the math right! As a couple hundred thousand jobs are added each month, a half a million people drop out of being counted as their benefits expire or for other reasons, the official rate is reported as going down.

In reality, however, there are more and more people entering the workforce each month, and the numbers of jobs being created simply isn’t enough to offset the losses, which means there are actually many more people out of work than there are with work.

If we used this simple calculation (with work vs. without work) for determining the unemployment rate, the number would be closer to 45% of people without full time employment in America:

But the by far largest category “missing” from both the Employed and Unemployed statistics is the “Not In Labor Force”: 85.2 Million people.

The BLS definition states: “Not in the labor force (NILF). A person who did not work last week, was not temporarily absent from a job, did not actively look for work in the previous 4 weeks, or looked but was unavailable for work during the reference week; in other words, a person who was neither employed nor unemployed.” (Clearly, this does include lot of unemployed people).

To summarize: 108.616 million people in America are either unemployed, underemployed or “Not in the labor force”. This represents 45.5% of working age Americans.

Believe what you will about the official unemployment figures in America. But understand that no amount of manipulation will change what’s really happening. Just because someone in the news media suggests that only 9% of people are unemployed doesn’t change the fact that 43.6 million (and counting) broke and hungry people depend on food stamps to feed their families, home prices continue to decline, foreclosures are at record levels and climbing, and the cost of essential goods is inflating in response to monetary inflation.

Federal Reserve Chairman Ben Bernanke, in prepared comments to the National Press Club, said on February 3, 2011:

“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”

Based on how the government is officially calculating our unemployment rate, recovery should be in full swing by summertime.

For those who look at the underlying fundamentals of our unemployment picture, however, it’s clear that the rate of unemployment, as estimated by Shadow Stats, is roughly 22% with no end in sight to the job losses.

If sustained growth in employment will lead to economic recovery, then astute readers can probably guess what the alternate scenario may bring.

Author Mac Slavo writes and edits the website: SHTFPlan.com