Employment vs. Unemployment

Employment – Unemployment

Employment vs. unemployment… You would think that they are two sides of the same coin. But when it comes to government stats they may not be.

The government uses two entirely different surveys to calculate Employment and Unemployment and as we will see since 2010 they have started to paint entirely different pictures. A few days ago we looked at how an independent organization (Gallup poles) is now tracking unemployment rates and how the government numbers appear to be understating the level of unemployment. Today we will look at the government’s own numbers and how they don’t even agree with each other… giving more evidence that the government is slanting the data.

Calculating Unemployment

The Bureau of Labor Statistics maintains a list of 60,000 households. These households are chosen based on 2,025 various geographic areas spread around the United States. 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 are rotated to limit the burden on any specific family. This survey is called the “Current Population Survey” or (CPS). In addition to questions about employment status the CPS tracks work experience, annual earnings, and whether school aged children are working, school enrollment, etc.

Calculating the Employment Rate

Although the unemployment rate is calculated based on a very small portion of the entire population the Employment rate is based on an effort to count all the jobs. This is done through the U.S. government surveying 390,000 businesses nationwide every month.  This survey is submitted by the businesses monthly based on company employment on the 12th of the month. It also includes individuals that are employed but on vacation, sick leave etc.

We must note that as the overall population changes it affects the percentage of people employed. For instance, if the population of the United States is 313+ Million and the number of people employed is 133 million only 42% of the total population is working. But that doesn’t mean we have a 58% unemployment rate. Some of those people are not in the labor force because they have retired, are disabled, are in College or are too young to work. In addition, some people are not in the labor force voluntarily, perhaps taking care of children or elderly parents. So in order to calculate the unemployment rate based on the employment rate you would also need to know the size of the labor force.

In the same way, if the number of jobs remains steady at 133 million but the population grows (and thus the workforce increases as well) then the unemployment rate will increase even though the number of jobs remained steady.

Employment vs. Unemployment Chart

However, if we take a look at a chart comparing the total number of people employed to the percentage of people who are unemployed we can still learn quite a bit.  Let’s take a look at the published data by the U.S. Bureau of Labor Statistics and see how employment compares to unemployment.

Employment vs. Unemployment

Click Chart for Larger Image

First of all, we will notice that the chart since 1994 breaks down nicely into 5 different time periods labeled Zones 1-5. The second thing we notice is that the Unemployment rate is upside down. This is done because theoretically unemployment is the inverse of employment and so by turning unemployment upside down we can see the correlation easier.

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. In general terms, we can see that the increase in population makes unemployment worse even in times of rising 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 timeframe the unemployment rate rose sharply even though there was only a modest decrease in the number of jobs available.

Zone 3 – Rising Employment vs. Falling Unemployment

During the third time period, from mid-2003 through mid-2006 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. 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 138.8 Million in October of 2007 at which point the population is about 301.5 Million. So from mid 2006 to mid 2007 employment rose from 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 vs. Sharply Falling Unemployment?

And this brings us to the current period that I call La La land. Beginning in 2010 with an Employment rate of 127.3 Million by April of 2012 we had almost 133 Million jobs. Which is a net increase of roughly 5.7 Million Jobs. During that time the population went from 308 Million to 313.4 Million or an increase of 5.4 Million. And supposedly the unadjusted unemployment went from 10.5% to 7.7%! ? Not in this Universe. With a population increase of 5.4 Million assuming half of them are in the workforce that would mean the workforce increased by 2.7 roughly Million and there were 5.7 Million more jobs. So that is a net increase of 3 Million jobs. No way 3 Million jobs would take the unemployment rate down 3%. Just look at the angle of increase. The unemployment slope is rising faster than the employment rate! The only way that could happen is if the population was decreasing.

Conclusion:

From this data (all based on the Government’s own numbers) we can only conclude one of three things. Either:

1) The government is fudging the numbers prior to the election to make things seem less bad.

See: Is the Government Fudging Unemployment Numbers? for more information on the “True Unemployment Rate” using the  Gallup Unemployment numbers to compare to the Government numbers.

or

2) There are a lot of people who have stopped looking for jobs and are no longer considered in the narrow U-3 definition of Unemployed and have moved to the broader definition U-6 of  “discouraged worker” because they have given up looking for work. Of course they are still unemployed they are just so badly unemployed that they don’t count anymore. See: U-6 Unemployment Rate for more information.

3) A factor like Obamacare is causing a shift in the number of part-time employees (reducing the number of hours worked per employee) so the number of part-time workers necessary is increasing. See Unemployment, Part-time Workers and Obamacare

For more information on Employment – Unemployment See: Unemployment Rate Chart, U-6 Unemployment Rate, Current Employment Data, and Historical Employment Data Chart, Current Employment vs Unemployment Chart .

 

 

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