When the most recent unemployment data was released just a couple of days after the second Presidential debate, there was some speculation that the numbers were “rigged” or “fudged”. We’ve been saying for a long time that even though they should be two sides of the same coin, the “Employment” numbers don’t track with the “Unemployment” numbers.
Basically, what the comparison chart shows is that unemployment is falling faster than employment is rising. Historically, in a recovery employment rises faster than unemployment falls.
But this time somehow “magically” unemployment is falling faster than employment is rising. How can that be?
Discouraged Workers are not the Answer
Some possible explanations up until this point were that people had given up looking for work (became “discouraged workers”) and so they were no longer counted as unemployed under the standard U-3 definition. This would of course make the U-3 number look better but wouldn’t indicate an improving economy. However logical this possibility sounds, the data does not hold up. If we look at the Bureau of Labor Statistics numbers for Unemployed persons by duration of unemployment we can see that the number of people unemployed for more than 27 weeks in September 2011 was 6,217,000 but in September 2012 that number had fallen to 4,835,000 so the long term unemployed had fallen considerably.
In the table below we see the number of “discouraged workers” in thousands according to the Bureau of Labor Statistics. Once again we see the number of discouraged workers declining.
Accounting Tricks of Another Sort: Part-Time Employment
But there is another issue, i.e. part-time employment and that is where the discrepancy appears to be. According to the Bureau of Labor Statistics (BLS) Glossary:
The BLS calculates Unemployment using the “Current Population Survey” a household survey and they calculate Employment using the “National Compensation Survey” which is a separate survey of employers. For more information see Current Unemployment Rate on how Unemployment and Employment are calculated.
But the problem comes because under the “Current Population Survey” workers are considered full-time if they work more than 35 hours a week but under the “National Compensation Survey” the BLS says “Employees are classified as full time or part time as defined by their employer.”
So right off the bat we have a different definition of “Full-Time” employment. So we have the beginning of a problem. As long as employers consider full-time more than 35 hours a week there is no problem, but if for some reason employers changed their classification we could see a divergence between the employment numbers and the unemployment numbers such as I noted in the above mentioned article.
The Law of Unintended Consequences
As mentioned in the article Unintended Consequences of Well-Intended Policies all governmental policies have unintended consequences and with the thousands of pages of hastily written law in Obama Care there are probably hundreds, if not thousands, of unintended consequences. One such consequence is related to section 1513 sub-section 4 Paragraph A which says, “The term ‘full-time employee’ means, with respect to any month, an employee who is employed on average at least 30 hours of service per week.” So basically, Obamacare has rewritten employment law and changed the definition from 35 hours a week as defined by the Bureau of Labor Statistics to 30 hours a week as defined by Obamacare.
So what are the unintended consequences?
If you owned a company and you had to provide certain health care benefits to full-time employees but not to part-time employees, and those benefits would drastically reduce your profitability, what would you do? The fact is, many companies in their reporting under the “National Compensation Survey” for the employment statistics chose 35 or 40 hours as their definition of a full-time employee. But now they are being forced to change that definition to 30 hours. Therefore, they are cutting the number of hours they are giving to employees from 35 to 28 or 29 hours a week. But they still have the same number of hours of work to do. So they then turn around and hire more people to work less than 28 hours a week to cover the extra labor done by the employees whose hours were cut. So one obvious unintended consequence of Obamacare is that many minimum wage workers will have their hours cut.
This is exactly what is happening, the most recent employment statistics (for September 2012) showed a massive surge in part-time employment of +582,000. Some speculated that a large portion of them came as a result of increases in campaign staff and people trying to sign up unregistered voters. But it is quite possible that these part-time jobs came from companies cutting their regular workers and hiring make-up workers so their average number of hours worked would be below the 30 hour limit.
The Unemployment Loophole-
Work 1 hour a week and you are no longer “unemployed”
Also interestingly, the BLS defines part-time as “those who worked 1 to 34 hours during the survey reference week”. So if you work as little as one hour a week you are no longer “unemployed”. And so by changing the definition of part-time and thus increasing the number of part-time workers (even though no more total hours are worked) the unemployment rate magically goes down! Under this logic, all the government has to do is say that anyone who works more than 20 hours is full time and the unemployment rate will magically fall to below 5%.
Whether unintended or not, it is all slight of hand and does not help the economy. After all, even if you are classified as “employed” rather than “unemployed” who can support their family by working one hour a week? The numbers may look better but, the fact remains that people are underemployed and so we see college grads are working part-time minimum wage jobs and people are having difficulty making end meet.
Photo Credits: By billjacobus1
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