Do Federal Statistics Mask the True Unemployment Rate?

BY busadmin  June 17, 2010 at 6:27 PM EDT

Question: You are already in depression territory, not approachment. The statistic from the BLS is one of the reasons the economic crisis went undetected for so long — an economic indicator that is deceptive. The statistic is relative only to the number employed and there is a time constraint on this number.

If you are looking to do another report on a statistic that is out of alignment then look at the CPI, consumer price index. Definition changed many times to accommodate the accelerated rate of inflation. To diminish the true rate of inflation. Starting during the Reagan administration the items in the basket were changed to bring down the CPI. The true rate of inflation is unknown since only items with the smallest increment increases make up the CPI. Items like health care or college tuition would never be in the CPI basket. A deceptive, practice maybe even criminal, since this was one of the indicators that masked the 2007 economic crisis and is masking future economic disasters.

Paul Solman: We’ve done considerable work on the unemployment statistic, Mr. Bianco. See our story, Undercounting Unemployment, which defines the different unemployment rates (called U-3, U-4, U-5 and U-6). The key points are that, compared to the way the headline unemployment rate (U-3) was officially calculated back when it hit its post-WWII high of 10.8% (1982), there have been major changes. Here they are:

1) The population is older and thus should have a LOWER unemployment rate, since older workers work more than younger ones do;

2) The number of Americans receiving government disability, virtually nil in 1982, is over 5 million today, and a significant percentage of them would presumably be unemployed if in the labor market;

3) Same for America’s prison population, which has risen by some 2 million since 1982. Estimates of unemployment among ex-convicts range up to 80%

4) Finally, the point you’re presumably making when you write about “a time restraint”: there are far more “discouraged” workers now than in the 1980s who don’t affect the unemployment rate at all. Starting in 1994, once you hadn’t looked for work for more than a year, you were officially removed from the workforce. Entirely. And that, as with items (2) and (3), above, reduces the headline rate – U-3 – and all the broader measures of unemployment as well.

One more point about unemployment before touching on the CPI issue you raise. Right now (as of May’s data), the broadest measure — U-6 — stands at 16.6 percent. If you included working-age Americans who haven’t looked for work in the past year — and who WERE included back in 1982 — the number would be a lot higher. And indeed, the main reason the unemployment rate didn’t go down last month, despite the surge of Census Bureau workers, was that many of them began looking for work again, thus “rejoining” the officially counted workforce.

Now, on to the CPI. I’ve covered the story of this statistic since the early ’90s, well before the so-called “Boskin Commission” revised the calculation in 1996. I could go on and on about this — and indeed I sometimes have. But the bottom line is that I honestly don’t think the adjustments make that much of a difference. I certainly don’t think they masked the crisis or that they’re especially deceptive, much less “criminal.”

For the most skeptical look at these measures, you can look at John Williams’ ShadowStats website. We’ve interviewed Williams on several occasions.