Spilling Buckets: Freedom Driven Personal Finance and Debate

Jam Exchange!

by Leslie | 7/26/2010 in Cooking and Frugality |

I am excited to be participating in StephChow's second annual Jam Exchange!

Last summer I got some really great stuff from my jam partner: Megan's Cookin'. Megan sent grill seasoning, Lemony-Peach Basil jam, and Raspberry Chocolate ice cream topping. I haven't cracked the chocolate topping yet, but have used the grill seasoning a lot with our barbecue. The basil was really a nice change of pace from ordinary peach jam. I will probably try to make this pretty soon with the abundance of basil I've received from the CSA.

Afterward, Steph and I met up (since we both blog from Rochester) and had lunch with our own mini-exchange. From that encounter I received spiced peach blueberry jam, and apricot jam. Both of which we absolutely loved. In fact I plan on making the blueberry peach spiced jam myself this summer now that both fruits are in season again.

When I saw that Steph was hosting a second jam exchange I got very excited and had to sign up. If you have recently been experimenting with putting food by via jams and jellies, or are an old pro who has been making jam for years, feel free to sign up - she's taking participants until August 11th on her website: StephChows.com

Ryan and Leslie write about topics relating to personal finance, debate, and non-traditional lifestyle design. Spilling Buckets is a collection of freedom driven ideas mixed with a philosophy of self-reliance and independence.

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What is the unemployment rate?

by Ry@SpillingBuckets | 7/23/2010 in Politics and Government |

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What is the unemployment rate?

Tragically the answer seems to first hinge upon another question: Do you believe that the economic recovery has begun, or do you believe that policies aimed to spur the economy have failed?

Asked separately, but similarly: What is your political affiliation?

At this point you may be thinking that one's political philosophy in no way affects how a statistic is calculated. You would be right in that line of thought, it doesn't; however what it does affect is which unemployment statistic is used, and not-surprisingly analysts and politicians gleefully cherry pick the number to best serve their own arguments.

So, what is the current unemployment rate?

Before we get the answer, we need to explore more questions. The following answers lean on a great article entitled "What is Unemployment?" by Rea Hederman, Jr.

How did these figures come about?

What do these figures mean?

What do they really count?

How reliable are they?

The federal government began collecting labor statistics in 1870, when the decennial census began counting the number of "gainfully employed" Americans. Note how this statistic calculated the employed rather than the unemployed as "Unemployment" was not yet in the American lexicon.

It wasn't until the Great Depression and the subsequent enactment of many social programs for the unemployed that the federal government decided they needed reliable ways to measure whether their policies were effective or not.

In 1940 under the auspices of the Works Progress Administration (WPA) a national survey called the Monthly Report of Unemployment was created. The vague threshold of "gainful employment" was replaced with a set of terms meant to measure a person's precise labor activity (or lack thereof) in the course of a month. Individuals had to be employed, unemployed, or looking for work.

In 1942 the WPA was terminated and the task of employment surveying was transferred to the Census Bureau. Renamed the Current Population Survey (CPS) in 1948, and outsourcing analysis to the Bureau of Labor Statistics (BLS) in 1959, this report remains the source of much of the government's data about the labor force.

The CPS works by looking at a enormous random sampling of 60,000 households each month, and examines the status of all working-age civilians. This large sample size allows for statistical corrections ultimately producing a reliable picture of the larger population with a margin of error of less than 0.2%.

A separate monthly survey called the Current Employment Statistics survey (CES, often referred to as the payroll survey) polls employers rather than employees asking how many workers they employ as well as their employee's hours and earnings.

These two reports, the CES (measuring jobs) and the CPS (measuring workers), make up the official government assessment of the labor market and provide a treasure trove of information which is repackaged by the BLS into digestible portions.

"The basic unemployment rate today measures the number of unemployed workers as a percentage of the total civilian labor force; the labor force in turn is defined as those who reported that they were employed in a given month's CPS, plus those who did not work in the week about which the CPS inquired (but who did actively search for a job at some point in the previous four weeks and could begin working if offered a job)"

It's Overstated. Some economists argue that the criteria for "actively searching for a job" are extremely loose. A casual conversation about a job with a friend, updating your Facebook status (I am serious), all count.

It's Understated. Others argue that the "unemployed" criteria does not account for those who might want to work but have not been searching in the past four weeks. These people may feel that they have no hope for employment at the time or have health problems preventing them from searching. This definition also excludes the underemployed, or those seeking full time but currently working part time.

To address these concerns the Bureau of Labor and Statistics slices and dices the data into six different unemployment figures letting economists, policymakers, journalists, and the broader public choose what they want. Created in 1976 and revised in 1994, this "U series" or six figures labeled U-1 through U-6, each provide a different measure of the underutilization of labor-forces.

Numbered from most restrictive to least restrictive: (data, release schedule)

U-1: includes workers who have been unemployed and actively seeking jobs for 15 weeks or more; it is used to asses the severity of unemployment, since significant long term unemployment suggests a particularly depressed labor market. (Seasonally adjusted June 2010 rate: 5.8%)

U-2: is a measure of job loss, counting the percentage of the labor force that is unemployed as a result of being involuntarily let go from a job. (5.9%)

U-3: measures the number of people who are out of work but actively looking for jobs as a percentage of the total labor force. This is the most commonly quoted statistic and is referred to as the "official" unemployment rate. (9.5%)

U-4: this rate includes those counted in U-3, plus so-called "discouraged workers", or people who do not believe they can find work. Note: the discouraged worker category is extremely subjective and has sparked much debate among economists. (10.2%)

U-5: includes all those in U-4, plus people who say that they want to work but are not actively looking for work for reasons other than discouragement (referred to as "marginally attached workers" - these are people who have ever thought about one day having a job). (11.0%)

U-6:citied as evidence of a trouble in the labor market. (16.5%!)

Each of these statistics does provide incite into the health of the labor force however research has proved that some are more reliable than others. Unfortunately those numbers which have been determined to have debatable meaning are also those most often quoted by reporters and pundits. For example:

...to make things seem more desperate:

"The unemployment rate may be at 9.5 percent, but that doesn't come close to measuring the share of the workforce that is directly affected by the crisis in the labor market. The underemployment rate, for example, now stands at 16.5 percent." - Washington Post Article arguing for extended unemployment benefits

...to criticize Obama's economic policies:

"While official unemployment hovers around 10%, real unemployment [U-6] is frighteningly higher at nearly 17%." - Eric Cantor, House minority whip

...to argue for expanded social policies: (generally muted over the past two years as Democrats are not inclined to highlight grim job numbers on their watch. We have to go back a little farther)

“While the rise in unemployment has been the focus of many news stories throughout the recent economic downturn, a related issue that has received far less attention is the effect ‘underemployment’ [U-6] is having on America’s working families."

In another statement House Majority leader Steny Hoyer is quoted as also saying:

“In his last act of economic malpractice, President Bush continues to resist these vital steps for recovery. But if he cannot be convinced to sign an economic recovery package, the Democratic Congress will ensure that President-elect Obama can sign it quickly after he is sworn in.”

In two separate studies, alternative measures of unemployment such as U-6, fail to provide evidence that they offer a more meaningful or more "real" snapshot of the labor market than the standard unemployment rate.

1) BLS economist Monica Castillo's research suggests that workers officially considered unemployed (U-3) are more likely to stay in the labor force and work in an economic recovery than individuals who simply wish they had jobs (components of U-6). It was also discovered that those counted in U-3 and U-6 have very different levels of interest and attitudes toward job opportunities.

2) Federal Reserve of Boston vice president Yolanda Kodrzycki's research argues that the demographic characteristics of marginally attached or discouraged workers lean towards older and less educated people than the general population. This limits their ability to find jobs, even in a surging economy and factors such as age make people even less likely to want to work in the first place.

The real problem in all of this is that these broader unemployment rates are not helpful to analysts and decision makers seeking to form the most accurate picture of the state of the labor market.

"The fact that people who do not want to work, don't work, for instance, is hardly a great insight into the health of the economy."

Hederman hits it on the head:

Champions of limited government should see that, despite their temporary usefulness in scoring political points, these broader measures seem to argue for even more spending and expansive welfare policies.

Liberals should understand that broader alternative unemployment rates are not their friends either and that they exaggerate the woes of the labor market, and make it hard to portray any job-creation program as effective.

I agree with the Hederman - for anyone who wants to engage in honest debate about the American workforce - the standard unemployment rate, despite its flaws is very hard to beat.

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Jam Exchange!

What is the unemployment rate?

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