Tuesday’s announcement of the latest employment statistics for Minnesota offers an example of the classic question: Is the glass half full or half empty?
The unemployment rate for December ticked up one-tenth of a percentage point, from 4.6 percent of the labor force to 4.7, though not because jobs decreased. Filled jobs in Minnesota increased by 3,900, including an additional 700 in manufacturing.
The unemployment rate is up and the number of jobs is up? You can be excused for wondering, “What’s going on here?”
A primer on labor market definitions and procedures is in order. When the system was created, the U.S. Bureau of Labor Statistics first had to set up categories that were “exhaustive and mutually exclusive,” as statisticians say. In other words, every single member of the population has to fall into some category but no person should fall into more than one.
Starting with the entire population, the first step is to separate those younger than age 16. Next, anyone older than 16 who is in an “institution” — i.e., prison, mental hospital, nursing home, etc. — is set aside. Now we have the “non-institutionalized population, 16 and over.” Those in the military also are counted and set aside for most calculations.
Everyone left is divided into one of two groups. An individual is either “in the labor force” or “out of the labor force.” You are in the labor force if you are “employed” or “unemployed.” You are considered employed if you worked for pay one hour or more during the week containing the 12th of the month, worked at least 15 hours without pay in a family business or had a job but did not work because of illness, bad weather, strikes and so forth.
You are unemployed if you want work and are actively looking for it by doing one of a number of things including filling out a job application, sending out resumes, calling employers, consulting job banks and so forth. If you don’t have work, want a job but took no concrete action to get a job, you don’t meet the test of being “unemployed.”
Instead, you join many others in the “out of the labor force” category. Most in this group are content with their situation. Many are retired, many others are full-time parents and some are students who do not have jobs. Still others are disabled.
Of everyone 16 and older, about two-thirds are “in the labor force” and about one-third is “not in the labor force.” This split is highly influenced by factors such as the average age of the population and what proportion of parents stays home full time to rear children.
Conducting a census of every household in the country every month would be prohibitive, so the U.S. Department of Labor surveys 60,000 households across the country. This Current Population Survey is the source for unemployment rates and labor force participation rates. In December, for the United States as a whole, 5.7 percent of the labor force was unemployed and 66 percent of the population 16 and over was in the labor force. This is just one side of the employment statistics coin, however.
A separate monthly survey of employers also is conducted. This covers more than 300,000 employers nationwide and some 5,900 in Minnesota. Virtually all large employers are included.
One important note: This survey counts jobs, not people. One moonlighting person may fill two jobs; with job sharing, one job might cover two workers. Small employers and the self-employed are not picked up in the monthly survey itself, but are added in using reliable statistical techniques and data from other sources. This Current Employment Survey is the source for data on the number of jobs — 130.1 million in December for the nation as a whole.
The data released Tuesday for Minnesota is based on the same surveys, but because the portions of the national samples that come from Minnesota are too small to be statistically reliable in themselves, Minnesota’s Department of Employment and Economic Development combines them with other information to come up with reliable estimates for the state, counties and major cities.
So, who is right? Is the news bad because the unemployment rate went up or is it good because the number of jobs went up? It’s your pick, but while the media and general public fixate on the unemployment rate, most economists look at the jobs number as a more reliable indicator of how things are going.
In December 2003, the unemployment rate was 1.3 points higher than in December 2000 — before the slump and other bad news of 2001 occurred. But the number of jobs has increased by 50,000 over the same period. It didn’t increase as fast as the number of people who want jobs, hence the rise in the unemployment rate. But it is far from being the Great Depression.
Pessimists will note that there are 34,000 more people who want jobs but don’t have them than at the end of 2000 and that each of these unsatisfied seekers could represent a household in trouble. Hence, they say, government needs to take even more drastic measures to increase employment.
This prescription clearly would be correct if there simply were a reliable button someone could push with no danger of harmful collateral effects. There isn’t one.
Both the Fed’s pumping up the money supply and the federal tax slashing are probably at the point where they are doing more harm, on balance, than good. Even if your horse isn’t running as fast as you would like, pumping him full of steroids and amphetamines is not necessarily a good idea.
The number of jobs will continue to grow and the unemployment rate eventually will drop. It may be decades, however, before it gets to the sub-3 percent levels we saw in the late 1990s. That was an aberration.
© 2004 Edward Lotterman
Chanarambie Consulting, Inc.