Unemployment and How To Manipulate With Statistics

Ah, the unemployment rate. An economist’s favorite statistic! Right? While the unemployment rate may seem like a simple statistic you occasionally see on your nightly news, that statistic is just one of many unemployment rates. Because of this, the “true” unemployment, or the unemployment rate that should be considered official has been a hotly contested subject over the past decade and especially in this past election. This debate however, has been hushed away from the public eye and was probably over shadowed by the flashier and sexier controversies of late. According to the Bureau of Labor Statistics, the current unemployment rate stands at 4.7% as of the end of February, yet on the campaign trail and in office, President Donald Trump has suggested that the current statistic may be underestimating true unemployment in America. In fact, he has claimed that the true unemployment rate may be upwards of 42%. Why is there such a drastic difference in the two rates? Does Trump’s claim have any real backing? What should the real unemployment rate be?

First, let’s talk about how the unemployment rate is calculated. Without getting too technical, the unemployment is simply the number of people who are unemployed and have looked for work in the past 4 weeks divided by the total labor force. The labor force consists all Americans

who are readily available for work. Because of this, we do not include stay-at-home mothers, retirees, full time students, or disabled citizens in that labor force number. There are two other definitions that are important to understand: ‘working age population’ and ‘discouraged workers’. The working age population is simply all Americans above the age of 16. Discouraged workers are those who aren’t working and have given up on looking for work because they do not believe there are jobs available for them. Discouraged workers are considered to be out of the labor force and are therefore, not included in the unemployment rate even though they are willing to work.

So how did Trump get his 42%? Well, he took all the Americans above the age of 16 who weren’t in the labor force, added them to the rest of the unemployed and divided it all by the people in the working age population. This means, that stay-at-home moms, discouraged workers, your retired grandpa, and even you, a full time-student, are counted as unemployed under Trump’s claim. Essentially, Trump’s estimates include people who are unemployed because they choose to be so, which is a normal aspect of a market economy. Why is this an issue? People respond to economic indicators like inflation rates, GDP growth, and unemployment. We see these statistics all the time in our nightly news. Furthermore, how American’s perceive the economy to be fairing effects their spending habits. Additionally, by manipulating the statics, Trump is able to make people believe that the current economic situation fostered under the Obama administration is worse than it really is. Playing to American citizen’s lack of an understanding about what the unemployment really means paints an unfair picture of the last president. Therefore, it is important these data be shown accurately and fairly and that those watching understand what the data means.

There are also various different unemployment rates that fall in-between the BLS’ 4.7% and Trump’s preposterous and misleading 42% claim. To understand these variances, let’s look at what it means to be employed. People who work part-time and people who are underemployed are also included to be employed. (Underemployed means a person is forced to settle for a job they are over qualified for. Like a PhD working in McDonalds.) When you add all those who want to work but have not looked for a job in the past few weeks, the unemployment rates rise by 1% to 5.7%. While yes that may seem small, but that’s still about a million American lives who cannot make ends meet. Furthermore, if you tack on all of those who are working part-time because they cannot find full-time positions, the rate jumps up to 9.2%.

While working part-time can fall under the umbrella of underemployment, there are other factors like a mismatch of human capital to a job (i.e: A PhD at McDonalds). It measures what percentage of people in the labor force are not being used to their most efficient/maximum capabilities. These types of underemployment are important too because they can show how well the labor market is performing in highly skilled and specialized industries. The current estimated underemployment rate is 13.7%.

This ABC news show only shows the basic unemployment rate.

4.7%, 5.7%, 9.2%, 13.7%, and 42% all tell different stories. It is important to understand the dangers of a populous who is uninformed: potential for manipulation. In a time when alternate facts can take precedent over their widely accepted counterparts and when most media have at least some bias, and therefore, political agenda, that the everyday American can distinguish and dissect these statistics so they can make their own decisions about the state of the economy and consequently, the successfulness of the government in maintaining it. Because of this, Unlike an avid follower of the economy like myself, I doubt the typical American will take the time to research these different rates.  I believe the news must do a better job of bringing statistics like the other measurements of unemployment and underemployment (Not including Trumps bogus claim though.) into the national spotlight.

 

Sources:

 

http://blogs.wsj.com/economics/2015/08/20/donald-trump-is-right-about-42-of-americans-are-unemployed-if-you-include-my-88-year-old-grandma/?mg=id-wsj

 

https://www.bls.gov/news.release/empsit.t15.htm

 

http://www.investopedia.com/terms/u/underemployment.asp

 

 

4 thoughts on “Unemployment and How To Manipulate With Statistics

  1. Yet another great blog Aaron! You did a great job analyzing Trump’s undeniably exaggerated claim of 42% unemployment, as well as the oft-touted 4.7% figure. Flaws in each were shown and explained in depth, something rarely done in the news, and now I honestly feel informed about the subject. Your sources lent more credibility to your cogent argument, and I enjoyed the read.

    As of February 2017, the US unemployment rate is 4.7%. In 2013, when unemployment was frequently above 7%, economists and the fed had their target rate set between 5.2% and 6%. Fortunately, we are below those percentages, but according to Bloomberg the actual ideal US unemployment rate would be around 3-4%. This was backed up by the argument that a more active job market will encourage more production and pull people out of poverty by giving them a chance to work their way up the economic ladder. This goes contrary to an outdated economic theory that inflation and unemployment are inversely proportional, a theory that may have influenced the goal setting in 2013.

    How do we lower unemployment you ask? According to the Atlantic, there are a number of ways to do so. Tax-wise, the government could offer tax credits to companies who hire more workers for less hours in a way like a program in Germany. This would allow people to enter the work force and gain skills to be used in future jobs and as resume builders. Another idea is to have the government declare China a currency manipulator and impose sanctions to encourage more production in the United States and thus more jobs if it does not devolve into a trade war. Finally, lowering the minimum wage would allow employers to hire more laborers for the same price, increasing productivity of the populous and giving them work force experience. Hopefully, one or more of these methods will be implemented by the new administration successfully to lower unemployment to even better levels.

    Sources:

    https://www.bloomberg.com/news/articles/2013-05-02/why-not-target-a-3-percent-unemployment-rate

    https://www.theatlantic.com/business/archive/2010/09/10-ways-to-cut-unemployment-in-half/62506/

    https://data.bls.gov/timeseries/LNS14000000

  2. I feel like this is a bit on the biased side. Trump is not the first president to claim that unemployment is higher than the “unemployment rate” suggests. Labor force participation in the country has been at a 40 year low since September 2015, when it dropped to 62.4%, and hasn’t risen above 63% since then. While this may be due to the large number of Americans reaching retirement status, that does not make Trump’s claim preposterous in any way. The actual unemployment rate, using the labor force participation rate, is 37%, and Trump was completely correct in the number of people not working that he referenced. He said 93 million people are not working, which is correct. His estimation of the total labor force, however, was slightly off. You conveniently left that out. I point this out because it’s clear that you weren’t even being objective in the way you represented your sources.

    Getting into the actual substance of your blog, you oversimplify the situation and then suggest that the average person would not understand when you say “Because of this, Unlike an avid follower of the economy like myself, I doubt the typical American will take the time to research these different rates.” While you’re not incorrect, it seems arrogant to suggest that most Americans simply wouldn’t understand the complexities of the labor economy. An uninformed populace is dangerous, but repeatedly benefits the left. Obama’s administration touted their “below 5%” unemployment rate, knowing full well that this was not an accurate number. Of the jobs added under Obama, millions were part time or government jobs, but he did not say this, which allowed him to mislead the public into believing that the economy had recovered in some massive way under his guidance. Whether Obama knew he was misleading people or not is up for debate, but you can be certain someone within his administration knew. You’re right that an uninformed populace can be easily misled, but it’s naive or arrogant to pretend that it’s Donald Trump doing it. Nothing he actually said in the interview you reference was misleading. Full time students, stay at home mothers, and the like are all unemployed. It’s easy for the left to claim those people simply don’t want to work, but it’s misleading to say that they’re choosing not to participate without the data to support such a claim. They may want to work. They may be unable to find that work. That means they’re unemployed, not uninvolved.

    • Hey Aiden, well written response! I have a couple of points from your response that I’d like to touch on to clear up a few things.

      First, you mention that I am biased against Trump. While I do disagree with Trump’s claim, that does not mean I want to slander his name as a whole, he was simply, an extremely relevant example for my blog’s topic. Also, just because I didn’t mention an example of the Obama administration or administration before doesn’t mean I denied that it ever happened or that I’m out to get Trump. I have no leftist agenda here, I am no an economically liberal person. In fact, it definitely happened in past administrations (hence why I brought up the 5.7% and 9.2%) and a main point of the article was to call for easier access to these data. I’m not saying people wouldn’t understand it if the saw it, they just simply don’t see it in the first place, only what the media put in front of them.

      Secondly, labor force participation rate is not the same thing as unemployment rate. This part isn’t even a political debate. Take ECON 104 here and you will learn that the The Labor Force Participation Rate calculates the percentage of people in the working age population who are in the labor force. People who are not in the labor force are neither employed or unemployed, and when the Unemployment rate is equal to labor force dived by unemployment, I don’t see how this can even be debated, I see nowhere to put full-time students in the equation. (unless we want to talk about discouraged workers, which is reasonable.) Either that or you can change the rules of economics. The labor force is defined by people in the working age population who are willing to work. If Trump would like to use his 42% statistic he would have to change that definition too. Full-time students, retirees, and stay-at-home mothers that choose not to work, are most likely not willing to work, but some are, and I’ll get to that next. You said “it’s easy for the left to claim those people simply don’t want to work, but it’s misleading to say they’re choosing not to participate without the data to support the claim.” But, the data is there. That is what the BLS does, they find statistics about labor. If in the survey the person filling it out said they were a full time student and working, they’d be considered employed; full-time student and looking for a job would be unemployed; and full-time student not looking to work would be out of the labor force. Being a full-time student or stay at home mother doesn’t exclude you from being unemployed if you are one of those previously mentioned occupations and looking for a job. The 37% not in the labor force are, by definition, not willing to work so they cannot be counted as unemployed, yet are the people Trump claims desperately need jobs.

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