Lies, damned lies and American unemployment. By Adam Porter 02 Aug 2005 at 09:12 AM EDT
A new report from the Federal Reserve Bank of Boston (FRBB) has cast doubts on American government claims of a prosperous, employed America.
They have calculated the effects of those who have left the American job market completely. In doing so the FRBB estimate that “an 8.7 percent unemployment rate” could be nearer the truth that current government estimates. Those sit at 5.1%. A level of 8.7% unemployment would put America on a similar plane to European levels.
The report was complied by Katharine Bradbury, Senior Economist and Policy Advisor at the FRBB. Using the most recent figures available Bradbury says, “measured relative to the business cycle peak in March 2001, labor force participation rates…have not recovered as much as usual, and the discrepancies are large.”
Those “discrepancies” mean that according to Bradbury the recovery in America has not been as strong as was thought. Bradbury points out that unemployment figures have indeed fallen. But the percentage amount of the workforce actually in work has remained relatively unchanged. She says an unemployment figure of 6.5% to 8.7% is more realistic.
“Even after job counts began to rise and joblessness subside…the fraction of the population that is employed did not increase, and it has not improved measurably to date,” she says.
“Thus, improvements in total employment and the unemployment rate, as delayed and modest as they have been, overstate the strength of the recovery, since the nation’s labor force participation rate has not rebounded to date.”
So, Bradbury surmises that if the employment rate is not accurate today, then it has to be looked at in context. In other words it may have been understated all through the last recession, in 2001 and after.
“Indeed, because participation declined fairly consistently from 2001 on, the rise in unemployment during the recession also understated the severity of the slowdown.”
Bradbury is also not alone in the banking community. Previous statistical examples this year have also questioned the methodology behind America’s economic numbers.
One example is the St Louis Federal Reserve (SLFB). They monitor a variety of statistics and those generally supports Bradbury’s view. In the SLFB terms the percentage of civilians employed has declined since 2001. The number of adult Americans in work has declined from 64.3% down to 62.7%. Though their data does suggest a steadying of the figures in 2005.
One of the SLFB’s most interesting measurements is the amount of job advertisements in newspapers, called ‘Help Wanted’. From a starting point of 100 in 1987 the index had fallen in 2001 to 76. A fall of 24% in fourteen years. Since 2001 however this index has fallen to 38. That is a further fall of 50% since 2001. This data also suggests a similar firming up in 2005 to other employment calculations.
Both Bradbury and the SLFB are backed up by data from the Center On Budget & Policy Priorities in Washington. They have looked at unemployment figures in America. They calculated that at the end of 2004 just over three million working folk have dropped off the figures, nearly half a million in California alone. As these people are not able to claim benefits they are not counted on the register.
Another bank, Deutsche Bank, have also been active in 2005 pointing out discrepancies and differences in the way America adds up its employment and productivity statistics. Especially in contrast to the European Union in the period 2001-2004.
“According to official statistics, the rise in labour productivity in Euroland, at 1.5% p/a., was only half as strong as in the US,” said Deutsche Bank from a report in January 2005.
“However, the productivity gap between the two economic areas is largely a statistical artefact caused by different classifications…[and] varying calculation and measurement methods. If the same methodology is applied, the US lead in productivity over Euroland narrows to roughly 0.5% p/a.”
Of course nations within the Eurozone are also open to widely different productivity levels. The most productive nation in the Eurozone is France. If America is neutral at 100% France is more productive per-head of the workforce by 13%. However Portugal limps in at just 53% of the productivity level of America.
With such a wide variety of methods for collecting data a large portion of debate enters into employment calculations. Throw in hedonic indexing, seasonal adjustments and index ‘weighting’ into the mix and these may debates set to rage for many years to come.
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