Employment vs Unemployment-
When looking at employment vs. unemployment you would think that they would simply be the inverse of each other. Flip one over and you have the other. But since the U.S. Bureau of Labor Statistics (BLS) actually uses two entirely different surveys to calculate them we can compare them and find anomalies in their data.
The first survey is called the “Current Population Survey” or (CPS) and it is used for calculating the Unemployment rate. The second survey is called Current Employment Statistics (CES) and it is used to calculate the employment data.
Current Population Survey (CPS)
For Calculating Unemployment the BLS interviews 60,000 different households statistically calculated to represent the entire country. Every month Census Bureau employees contact about 15,000 of these households and then using statistical modeling they estimate the U.S. unemployment rate from this data sample. The households in the pool are rotated to limit the burden on any specific family. In addition to questions about employment status; the CPS tracks work experience, annual earnings, and whether school-aged children are working, school enrollment, etc.
Current Employment Statistics (CES)
The Employment Rate, on the other hand is calculated entirely differently. It is based on a report submitted by 390,000 businesses every month. Businesses are required to report the numbers of employees they have on the 12th of each month.
On the above chart we see the short-term picture of both sides of the employment equation employment vs unemployment. The blue line is employment and the red line is unemployment (inverted). We flipped the red line upside down so we can easily compare the two so they are both heading in the same direction. You can see that they generally track each other pretty well (as they should). But on several occasions we see something strange. Often employment increased very slightly, while unemployment fell sharply. Which doesn’t make sense as population pressures should dampen the effect of rising employment not multiply them. At other times, we see them moving in opposite directions i.e. employment and unemployment both rising (inverted so falling on the chart).
For another view see the independent Gallup numbers. See BLS vs Gallup Unemployment comparison.
In the following chart we see the longer term view and we can see that in zone 5 the official unemployment rate stopped tracking the employment rate and decreased much more sharply than the employment rate justifies. This is primarily due to a falling labor force participation rate.
In the longer term chart above, we will notice that the chart since 1994 breaks down nicely into 5 different time periods labeled Zones 1-5. Once again, the Unemployment rate is upside down. Zones 2 and 4 show how it should work a slight decrease (or even flat employment) should result in rising unemployment (due to an increasing population and therefore an increasing workforce). See Is the Government Fudging Unemployment Numbers?
Zone 1 – Sharply Rising Employment vs. Falling Unemployment
Looking at the data in zone 1 we can see a correlation that makes sense. As the employment rate rises sharply from about 115 million in 1994 to about 130 million in 2000, the unemployment rate falls from around 7% to about 3.5% (see right-hand scale). If we look at the slope of the lines we can see that the slope of the employment line is steeper than the slope of the unemployment line. This makes sense because as the population increases it takes more jobs just to stay at the same unemployment level. According to the U.S. census bureau, in 1994, the population of the United States was 263,126,000 by the year 2000 the population of the U.S. was 282,172,000 or about 19 Million more people. So assuming that roughly 50% of the additional 19 Million people entered the labor force there was an additional 15 million jobs. So that would be enough to cover the new workers while at the same time reducing the unemployment rate as well. In general terms, we can see that the increase in population counteracts some of the increasing employment.
Zone 2 – Slightly Falling Employment vs. Rising Unemployment
In the second zone from 2000 through the middle of 2003, we see employment falling slightly from about 133 Million down to about 130 Million. During this same period the population went from 282 Million to about 290 Million for a net increase of about 8 Million people. So during this time-frame the unemployment rate rose sharply even though there was only a modest decrease in the number of jobs available. Thus the increase in population makes a moderate decline in jobs worse.
Zone 3 – Rising Employment vs. Falling Unemployment
During the third time period, from mid-2003 through mid-2007 employment climbed again. This time from 130 Million to 137 Million. And once again the population increased from 290 Million to 298.5 Million. Seven million more jobs and 8.5 Million more people (remember only about half of the people are in the work force). So once again unemployment fell from 6% to about 4%. This time the slope of the lines are virtually identical.
Zone 4 – Sharply Falling Employment vs. Very Sharply Rising Unemployment
In the fourth period around mid-2006 we see unemployment bottoming although employment continues higher through 2007. Employment peaks at 139.1 Million in November of 2007 at which point the population is about 301.5 Million. So from mid 2006 to mid 2007 employment rose 1.8 Million while the population rose about 3 Million. And so Unemployment went from 4% to about 5%. From mid-2007 through mid-2009 we see employment falling sharply from 138.8 Million to 127.3 Million in January 2010. At that point the U.S. population was about 308 Million. So there were 11.5 Million fewer jobs and 6.5 Million more people so unemployment skyrocketed to 10.5%.
Zone 5 – Gradually Rising Employment
And this brings us to the current period. Beginning in January 2010 with an Employment rate of 127.7 Million by November of 2013 we had about 138 Million jobs. Which is a net increase of roughly 10.3 Million Jobs. During that time the U.S. population went from 308 Million to 317.1 Million or an increase of 9.1 Million. And the unadjusted unemployment went from 10.6% to 7.0%. From the chart we can see that somehow gradually rising employment combined with rising population resulted in rapidly falling unemployment… it shouldn’t work that way unless there is a problem with the numbers.
1) The BLS is fudging the Unemployment numbers.
2) Millions of people are retiring or leaving the workforce (the payroll to population (P2P) ratio does not support this since the P2P was 42.5% in 2010 and now a larger portion of the population is working not a smaller portion.) See Record Low LFPR which shows the LFPR by age group since 1999. The biggest declines occur in the younger ages while those above age 60 actually show a higher percentage are working. For instance in 1999 only 24% of those age 65-69 were working but 14 years later 31% of those age 65-69 were working.
3) All the new immigrants are working “off-the books” and are thus not part of the official “workforce”. According to the census bureau there is one new immigrant every 38 seconds and basic math tells us there are 31,536,000 seconds per year so that would be roughly 830,000 immigrants per year. So that would be more than 5.4 million immigrants since January 2010.
4) Perhaps a little of each of these.
Logically, in order to keep up with population growth the number of jobs has to increase just to keep the unemployment rate the same. So, in order to make the unemployment rate move down, employment has to increase sharper because the population is increasing.
So the questions arise:
1) How can Unemployment in Zone 5 fall sharply while Employment is only rising moderately?
2) How can the unemployment rate be nearing 2007 levels when the number of people working is up 5.72 million but the Civilian Non-Institutional Population is up by about 22 million which should result in an increase in the workforce of about 9.9 million?
Since almost half of the population is looking for jobs (Gallup says the payroll to population rate is roughly 47%) we would need roughly 10.34 million (22 x 0.47) more jobs just to be at the same employment level we were in 2007. But employment only increased by 4.675 million. So we are about 5.66 million jobs short. But somehow the unemployment rate is roughly the same???
The answer is because the Labor Force Participation Rate (LPFR) is falling which simply means more people aren’t looking for jobs and thus aren’t officially “unemployed”.
Note: The Labor Force Participation Rate may have bottomed as it appears to have made a higher low for the first time since 2008. Theoretically as more people rejoin the labor force the unemployment rate could go up even though more people are actually employed… if people rejoin the labor force at a faster rate than they find jobs.
See Labor Force Participation Rate for more information.
Changing the Parameters for Calculating Part-Time Employment
In our article entitled Unemployment, Part-time Workers and Obamacare we explained how 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.” But 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 it is possible more people are working part-time and fewer are working full-time but the same number of total hours are worked, which reminds me of the following quote:
This is actually quite a good analogy of what happens whenever the government gets involved because what would actually happen to the blanket would be that it would get shorter because of the new seam. And that is actually what happens in the economy as well because of increased inefficiency, and the government getting their “cut” the real economy actually gets smaller with every new regulation.
So companies are trying to avoid higher employment costs i.e. having to pay healthcare benefits for their part-time employees who work less than 35 hours a week. But because of the new definition of part-time under Obamacare these companies are having to reduce all these workers to less than 30 hours a week. So they are gradually hiring additional part-time workers to take up the slack. So even though no additional work is being done, simply by taking five hours from each of five employees another 25 hour a week part time job is created. The magic of government at work, unemployment rates go down and part-time employment rates go up but the economy is no better off. And actually it is worse off, because there is more overhead involved in managing and paying 6 employees rather than five. And the original employees are worse off because their hours have been cut so they have less to live on and they can’t collect unemployment because they are still working.
You might say Ahhh, those mean old businesses should be more generous and give their workers health coverage… but there are consequences to that as well. If they all did that the marginal businesses that are just scraping by would all go out of business and the unemployment rate would once again go up. In order for a company to make a profit and stay in business, it has to make enough on each employee to cover all expenses and make a reasonable profit. In the case of part-time and minimum wage workers the margin is slim to start with.