Reclaiming Common Sense

What is the Effective Unemployment Rate? There have been a number of personalities discussing the U-6 unemployment rate. This is the number of people who are working part-time for economic purposes, people who have given up looking for work,  and the unemployed. The U-6 rate exceed 17.5% during the worst of the recession. If we took the missing participants and added that number to the unemployed worker numbers for the respective Presidents and calculated the unemployment rate we would have an unemployment rate over 10%, possibly over 12%, and even exceeding 13%.

Will we drop below the 62% participation rate this Winter? It was thought during September of 2014 that 62% might be within reach. We hit 62.52% during January of 2015 and 62.49% during January of 2015. It was thought that we could drop below the 62.5% level during January of 2016. We ended up at 62.34%  The good news is that we currently have a higher participation rate than we had during July of 2015.  We saw a participation rate that was lower year over year during January and May of this year. June and July were marginally higher than last June and July. We could be seeing the first signs of improvement or we could see the participation rate 0.8% or 1% lower by December if we follow the pattern we did during 2015 or 2014. Maybe it will be 62.2%, Maybe it will be 62.5%.

What is the Difference - Isn't a one percent drop in participation the same as a one percent drop in unemployment? The unemployment rate is based on the proportion of unemployed as a part of the participants 

(Unemployment Rate = U3/(U3+PT+FT) 

while the Participation rate is the number of participants as a fraction of the workforce population
Participation Rate = (U3+PT+FT)/Workforce Population

We have 161 million participants. We have 8 Million Unemployed workers. We have 253 million workers. A one percent drop in participation would be a loss of 2.6 million jobs. (253.6*62.36% = 158.1 M versus 253.6 * 63.36% = 160.7) A drop of one percent in the unemployment rate would be a drop of 1.61 million workers. (160.7M* 5.34% = 8.58 million while 160.7M * 4.34% = 6.97 million or 1.61 Million.

We are under reporting the unemployment rate. President Obama was touting his Jobs Streak. You never read a story regarding his U-6 Streak. The U-6 data was first calculated during 1994. We have seen period of u-6 unemployment over 10% before President Obama's term in office.There was a 13 month streak under President Clinton. There was an eleven month streak under President Bush 43. We saw the streak hit 88 months, eight of which were under President Bush. This streak barely ended last Fall. Does it matter if we use the Effective Unemployment rate or the official U-6 rate? We are under-reporting the number of unemployed workers.

What's six million, nine million, ten million or eleven million participants among friends?  What's six to eleven million votes at election time

Originally Published on "Reclaiming Common Sense." by the same author

Every month the Department of Labor releases its Employment Situation Report or Monthly Jobs Report. The report is accompanied by two data sets: the Current Population Survey (CPS) and the Current Employment Statistics (CES.) The CPS data set measures the number of jobs, part-time and full-time, added to the economy, as well as the changes in the number of unemployed workers. The CES data set measures the number of workers. This is the data set used to compute the Private Sector Job creation streak. Both data sets have a seasonally adjusted (SA) and a non-seasonally adjusted (NSA) component.The headline number is the SA Non-farm "jobs." The number used for the "Streak" is the seasonally adjusted Private Sector "jobs" number. The seasonal factors change by component as well as by month and year. It is possible for us to lose jobs and gain workers or well as gain jobs and lose workers.

The June Jobs Report was supposedly a good report. Not really. This column published an article showing that the July 2016 NSA CES growth rate was slower than July 2013, 2014 or 2015. It also revealed that the non-seasonally adjusted unemployment rate rose as did the participation rate. While the White House is touting a strong Jobs Report number, it is no longer touting a consecutive months of jobs creation. The streak ended during May. The streak ended with the preliminary revisions to the SA CES data during the June Jobs Report. The final revisions to the May data during the July Jobs Report confirmed the end of the streak.

We live in the Era of the Meme. It was this past August when a meme was generated showing that President Obama was only in second place in job creation when compared to President Bush 41, President Clinton, and President Bush 43. The problem was that they compared the current President to Presidents at the end of their terms, This meme led to the the column "The Era of the Meme: Which President Created the Most Jobs?" When President Reagan was thrown into the mix things changed. When the Presidents were compared at the same point in time in office, starting with month 81, President Obama was in fourth place for Job Creation and First Place for the number of unemployed workers. It took until Month 85 for President Obama to overtake President George W Bush with respect to job creation.

How Many Jobs have been created through the 90th month? President Obama is still in third place. President Reagan consistently created more jobs than workers during the Summers of his time in office. President Reagan saw the workforce population increase by nearly 19 million jobs during his first 90 months in office. He oversaw the addition of 15.6 million workers. We had an excess of jobs during the Summer that needed to be filled. It would be great to know how many of those workers were working multiple jobs. This data was not collected until the 1994.

President Clinton  Added 20 million jobs for 19 Million Workers. Once again a President was able to create more jobs than workers. We saw a large number of people working multiple jobs during this period of time. Most of the people working multiple jobs during the 1990s were working a full-time job and a part-time job.  We saw an elevated level of people working two part-time jobs during the month of June, even as part-time jobs declined. What will we find this month?

President Bush Was Still Adding Jobs during the Summer of 2008. You don't hear so much about this anymore. You hear how unemployment soared under President Obama and how we were shedding jobs during President Bush's final months in office.  The truth is that we almost had as many people working during the Summer of 2008 as we had during the Summer of 2007 before the housing recession started to take its toll. Even so, President Bush had added 10 million full-time jobs from the start of his Presidency.

President Obama had added 12 Million Jobs, not 17 Million Jobs. You hear that President Obama has added 17 million jobs and this is the most since President Clinton.  They forget that he oversaw the loss of 5 million full-time jobs during his first year in office and that it took until the Summer of 2012 to recover those lost jobs. He has added more jobs than President Bush did during his first 90 months. He still has six months remaining in his term. The economy is slowing. May was an abysmal jobs month - July was only slightly better. Will he continue to add jobs or will he start shedding jobs?

How Many Unemployed Workers did the Presidents have during the 90th month? President Obama is doing better than President Bush and worse than Presidents Clinton and Reagan. Part of this is due to the expanding workforce since 1981. There are more workers. If we had the same unemployment rate the unemployment numbers would be higher. The workforce population has been growing. Job growth have not kept up with population growth under Presidents Bush or Obama as the previous section displayed. President Obama's unemployment curve is rising at a similar rate as President Bush. We saw a sharper June spike under President Obama than under President Reagan or Clinton.

The unemployment numbers do not relate one to one with the first-time unemployment claims or continuing claims data that is released weekly. The problem is that we have an elevated number of people working part-time jobs and multiple part-time jobs. These people do not qualify for unemployment benefits. We have seen a spike in full-time employees, non-seasonally adjusted, this Summer. Could they be seasonal jobs? If they are seasonal jobs then they do not qualify for unemployment benefits. We could see people who are surveyed reporting that they are unemployed and not see a spike in the weekly data.

How Many Participants were there created at the 90th Month Mark? We saw President Reagan add 16.8 million participants, employed or unemployed, during his first 90 months in office. This was even better than what President Clinton did. President Clinton added 16.1 million participants. They will end in a virtual tie when this column is written during February of next year. Even President Bush added 13.2 million participants by July of 2008. President Obama was the only President of the four to lose participants during his term in office. It took two and a half years to recover those lost participants.

We are missing at least 5.3 million participants to 10 million participants. Are they missing because they have retired or because they have given up looking for work? The last time this column looked at the aging workforce it was displayed that there was a drop in the workforce population of those between the age of 35 and 49. There was also a drop in the number of people employed in that same age group. People are not, in general, retiring in this age range. If they are not participating then are they unemployed? Do we really have 14 million to 18 million unemployed workers?

Do we have to increase unemployment to increase participation? No. President Reagan saw his participation rate Jump to 67.07% during the July of his eight year in office. He saw his unemployment rate drop to 5.51%. We see participation and jobs grow and unemployment shrink during a healthy economy. This was a healthy economy.

President Clinton saw his Participation Rate improve and his Unemployment Rate drop, too. President Reagan was seeing his unemployment rate drop during the summer and his participation rise. How did Clinton see his participation rise and unemployment drop? happen? Unemployment tends to spike over the Winter while participation decreases, and unemployment tends to dip and participation tends to rise during the Summer.  There were some upticks under President Clinton as he saw his participation rate improve. Unemployed workers are participants, as was previously discussed. President Clinton also had a participation rate of over 67% during the 90th month in office. President Clinton had a very low unemployment rate of 4.19%. This, too, was a healthy economy.

Even President Bush had a Participation Rate of nearly 67% during his 90th month in office. Yes, the unemployment rate was spiking during this period of time. People were still participating in he economy. They were still looking for jobs. Unemployed workers are a component of participation. If you have 160 million participants they can all be employed or 80 million could be employed and 80 million could be unemployed and you would still have the same number of participants. The unemployment rate would be astronomical. This was a good economy that was weakening.

President Obama has seen his Unemployment rate fall because his participation rate has fallen. Another way to look at it is that his participation rate has fallen because his unemployment rate has fallen.  Now we are seeing his participation rate improve because his unemployment rate is increasing. This is not being reported elsewhere because the rest of the media reports the seasonally adjusted unemployment number and the SA participation rate. These SA numbers smooth out the bumps. It would be nice for those recently unemployed to "smooth out the bumps by seasonally adjusting their job status and incomes.  Obama's unemployment rate is now over 5%. It is higher than what President Clinton saw during month 90 and approaching what Reagan had during his ninetieth month. Yes, his unemployment rate is lower than Bush 43. The question is should it be? This is a weak economy that may be weakening.

More Part-time Workers, More Full-time Workers and More Unemployed Workers than Presidents Reagan and Clinton. These numbers are more than just numbers - these are workers. They are mothers and fathers. Millions more workers. This should be good news. The problem is that our workforce population has grown faster than the jobs being created or recovered. We have added 38 million workers since President Reagan was in his 90th month. We have added 69 million to the workforce population. We have added 27 million full-time jobs. We have added 8.1 million part-time jobs. We have added 35.4 million jobs for  69 million potential workers. 

What difference does (the participation rate) make? If we had the participation rates of Presidents Reagan, Clinton or Bush 43, and we hold the population constant, then we should have 8.8 to 10.8 million more participants. Are they retired? No. Are they unemployed? Not technically. We are missing 9-12 million participants. We have a failure to participate.We need more jobs not more "unemployed" workers.