The Statistics Corner: Interpreting the Unemployment Statistics

Article excerpt

My guest columnist for this issue is Janet L. Norwood, formerly U.S. Commissioner of Labor Statistics. Janet gave this excellent discussion of how to interpret the unemployment statistics at the NABE Annual Meeting in Dallas, but the paper deserves wider distribution.

FOR THE PAST two quarters, the gross domestic product has grown, but the expansion has yet to pick up steam. Job growth has been quite weak. Even last July, when the Bureau of Labor Statistics reported an increase of nearly 200,000 jobs, almost none of the increase came from the private sector. The August data showed an even clearer picture: payroll employment in the private economy dropped by 167,000. The overall jobs number was bolstered by about 100,000 federally funded summer youth jobs, Job losses were especially large across manufacturing industries and in retail trade. In fact, factory jobs hit the April 1983 low point,

Bad news, you say? But the overall unemployment rate edged down another tenth in August. The Bush Administration, focusing on the improvement in the jobless rate since June, called the report "encouraging." The Clinton forces, focusing on the employment numbers, pointed to the weakness of the private sector.

The point is that we need to dig below the topside numbers to find out what is really happening. The jobless rate is always affected by the size of the labor force: those who are working plus those who are looking for work. Labor force growth has been unusually slow in recent years, especially for young people, whose labor force participation rates had been trending downward. The government summer youth program may have encouraged some of them to start job search once again.

We know that, when analyzing the unemployment rate, we can expect certain kinds of changes once economic growth really picks up:

1.The labor force will begin to increase. As the economy expands, many who have left the labor force during the recessionary period think that jobs are now available and so they decide to look for work. This labor force increase, of course, makes it harder to reduce the jobless rate because so many more people are in the labor force looking for a job. It has been the unusually slow labor force growth over the past few years that has exerted downward pull on the unemployment rate.

2. A part of that increased growth should come from the discouraged worker group -- those who were not looking for a job because they believed no job was available. The number of discouraged workers always rises during recession and shrinks during expansionary periods. We must remember, however, that the discouraged worker group did not increase as much as usual during the recession that began in 1990, so the increase in the labor force from this group, while important, will not be very large.

3. The proportion of the unemployed who have been jobless for six months or longer -- the long term unemployed -- will continue to increase as the business expansion sets in. This occurs because the most experienced and most valuable workers are laid off last and rehired first. Workers fired first (those who are not critical to the operation of the business) are usually the last to be rehired.

4. We can expect that the unemployment rate will probably lag at the beginning of an expansion because of the labor force growth that occurs.

In analyzing the current situation, of course, we must remember that this time around we face several unusual circumstances, all of which have an effect on employment and unemployment. For example, in recent memory, we have not had to face a recovery against the background of a banking crisis, which has resulted in more careful and slower extension of credit. In addition, the construction industry, as the result of overbuilding during the 1980s, has been extremely weak, even in a period when interest rates are quite low. Furthermore, the fact that consumer confidence remains quite low has slowed sales in the retail field and in services. …