December’s Job Numbers: Do They Represent All Job Seekers?

BY Paul Solman  January 7, 2011 at 2:14 PM EST

U.S. Adds 150k Jobs

I was all set to label our monthly post on the unemployment data “Hold Your Horses” or “Not So Fast,” a warning not to overplay the apparently sizable drop in the official unemployment rate from 9.8 percent to 9.4. But a scan of the world’s headlines shows that I needn’t have worried.

Making Sense

Economy Adds Fewer Jobs Than Expected,” declared the Wall St. Journal after the data were just released at 8:30 a.m. ET this morning.

Private Sector Improves U.S. Jobs Picture Only Moderately,” says the New York Times.

Unemployment rate drops; few jobs created,” echoes the Washington Post.

And from across the pond, the Financial Times simply sums up: “US adds fewer jobs than expected.”

So what’s going on? What happened in December?

First, a few reminders.

1) We’re starting with all Americans 16 years and older who aren’t in “an institution” like the military, jail or a nursing home: about 240 million Americans.

2) 85 million of THEM are considered to be “not in the workforce.” That is a matter of dispute, which happens to be the punchline of this post.

3) There are two surveys: of employers and of households. According to the first, payrolls increased by 103,000. According to the second, the working-age population grew by more than that amount.

4) We shouldn’t rely that much on month-to-month fluctuations. 60,000 American households are sampled in the “household survey.” The resulting data suggest a workforce of roughly 154 million. Now, we can’t know how accurate the responses are. Are lots of people working off-the-books? Are lots of people saying they looked for a job when they really didn’t? So it’s not clear how accurate these data are, including the numbers we’ll be using at the end.

5) The official unemployment number, 9.4 percent, only includes people who say they looked for work in the past four weeks. EXCLUDED are an estimated 6.471 million Americans — that’s right, SIX MILLION, FOUR HUNDRED SEVENTY-ONE THOUSAND Americans, estimated from the sample — who “currently want a job.”

That’s the punchline, elaborated below. But first, a bit of timely analysis from the major outlets.

NY TIMES: “The unemployment rate fell to 9.4 percent last month from 9.8 percent, its lowest rate since July 2009, the department said in its monthly report. But the figures also showed that the civilian labor force declined by 260,000 in December, as many Americans stopped applying for jobs.

“It is certainly a disappointment,” said Dan Greenhaus, the chief economic strategist for Miller Tabak & Company of the report. “The drop was more attributed to a decline in the number of unemployed people, rather than an increase in the number of employed people. There was not a surge in employment.”"

WALL ST. JOURNAL: “Non-farm payrolls rose by 103,000 last month as private-sector employers added 113,000 jobs, the Labor Department said Friday. The November number was revised up significantly to show an increase of 71,000 jobs from a previous estimate of 39,000.

The unemployment rate, which is obtained from a separate household survey, fell to 9.4 percent last month, the lowest level since May 2009 and the biggest fall in more than a decade. Still, about 14.5 million people who would like to work can’t get a job.

Economists surveyed by Dow Jones Newswires had forecast payrolls would rise by 150,000 and that the jobless rate would fall slightly to 9.7 percent.

…Still, there are signs the economy is improving, if only slowly, 19 months after the recession ended.

The Labor Department on Thursday said initial unemployment claims rose in the week ended Jan. 1, but the figure was lower than expected and the underlying pace of layoffs continued to subside.

A day earlier, payroll giant Automatic Data Processing Inc. estimated that the number of private-sector jobs in the U.S. rose by 297,000 last month, the strongest gain since ADP began collecting the data in 2000. ADP’s survey typically doesn’t match government figures.”

FINANCIAL TIMES: “According to data from the labour department, non-farm payrolls increased by 103,000 in December, which was significantly less than the 150,000 or so rise that was forecast by many economists. This could temper some of the recent enthusiasm about an acceleration in the US recovery, in particular expectations of a turn towards much more aggressive hiring by businesses.

“Today’s number . . . suggests we are only seeing a slowdown in layoffs, not yet a material pickup in hiring,” said Kathy Bostjancic, director for macroeconomic analysis at The Conference Board. “While the labor market enters 2011 with stronger momentum than it had starting 2010, today’s report won’t help the continuing weakness in consumer confidence.”"

………………………………………………………………………………………………………………………….

As you can see, the drop in headline unemployment from 9.8 percent to 9.4 percent has not impressed many. That’s because the drop in “unemployed” from 15 million to 14.5 million seems due, in large measure, to a drop in the workforce itself. That is, a lot of people who used to be “unemployed” are no longer counted at all.

This jibes with a theme that followers of my reporting may remember and the promised punchline of the post: headline unemployment may significantly understate the sorry state of the U.S. job market.

In fact, headline unemployment is only one of six numbers the government publishes monthly to track labor utilization. It’s called “U-3.”

Here at the NewsHour, we’ve been reporting the much more inclusive “U-6,” which includes people who say they want a job, but haven’t looked in the past four weeks. “U-6″ also includes all part-time workers who say they’re looking for full-time work. It would include your friend who “consulted” one hour in the past week; the woman I interviewed in Indiana who worked 27 hours in the past week stocking bread shelves because her employer wouldn’t let her work an hour more. If he did, he’d have had to provide benefits.

Add all those Americans who say they want a job but didn’t look in the past four weeks, plus all those who say they’re working part-time only because they can’t find full-time work, and you come up with a number far above the official unemployment tally of 14.5 million.

But for awhile now, we’ve worried that even today’s “U-6″ – 16.7 percent of a more inclusive workforce total – misses an important group of Americans: those who haven’t looked for work in more than a YEAR, but say they want to work. These are not the officially so-called “discouraged workers,” who ARE counted in U-6. Call this group “too discouraged to count.”

The government’s reasoning is that if you haven’t looked for a work in a year, you’re just not functionally a member of the workforce. If you were, why haven’t you looked?

But in fact, the person who administers the survey asks Americans if they currently want a job. And it turns out, though I guess I should have known this long ago, that the government does report “Persons who currently want a job” but don’t have one. It reports them every month in its unemployment report. It just doesn’t count them among the officially unemployed.

So, starting this month, we will. Call our new measure “U-7″, which will include all Americans who say they currently want a full-time job but don’t have one. I’m not claiming this is the best number. I realize it may include people who lie — because they really don’t want to work or are working off the books. But it seems only fair to highlight the number and percentage of Americans who say they want to work full-time, but the job market won’t let them.

In November, U-7 would include 14.485 million Americans officially unemployed PLUS 6.471 million more Americans who “currently want a job” but haven’t looked in the past four weeks PLUS 8.931 Americans who reported working part-time but wanted full-time work. The total: 29,887,000 of our fellow Americans.

Percentage? An 18.7 percent labor “underutilization rate.”

(For those who want to check my arithmetic, add the 6.471 million considered “not in the workforce” to an official workforce of 153.690 million, and you get 160.161. Divided by 29.887.)

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._