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What politicians don't want you to know about August's poor job creation numbers
Why it doesn't add up.
You could be forgiven if, when you heard Friday’s news about the August job creation figures and the new unemployment rate, you thought to yourself, “Something doesn’t add up here.”
That’s because it doesn’t, and it’s for the usual reason: Politicians and their media servants aren’t telling you the whole story.
The unemployment rate as announced by the administration dropped to 5.1 percent. That’s pretty low. We used to think of around 5 percent as “full employment,” meaning that for the most part any reasonably competent person who wanted a job could get one. But at the same time, the number of jobs created in the country came in at a very disappointing 173,000. To get some sense of why that’s a low number, consider that the constant growth of the nation’s population requires the creation of about 200,000 new jobs every month just to keep pace. So while 173,000 is better than what we saw earlier in the Obama presidency with numbers regularly coming in at under 100,000, it’s still not good. It’s not even at replacement level.
So how can the unemployment rate be going down when we’re not even creating enough jobs to keep pace with population growth?
The answer, of course, is that there are two unemployment rates – one the administration wants to talk about and one it doesn’t. The U-3 unemployment rate is the percentage of those who are part of the active labor force who are presently unemployed. What constitutes the active labor force? It’s those who are either working or are actively looking for a job.
The U-3 unemployment rate is the one you usually hear about, and that’s the one that’s showing a rate of 5.1 percent.
The U-6 rate calculates unemployment differently. This one counts those of working age who are not actively in the workforce as unemployed, not counting dependents. So the stay-at-home mom who takes care of the kids while dad works is not counted as unemployed in this measure, but the person who should be looking for work but got frustrated is counted. The U-3 rate ignores that guy because he “dropped out of the work force,” but the U-6 rate counts him. It also takes into consideration people who are underemployed, while the U-3 rate views every job as the same.
So what is the U-6 unemployment rate? It’s 10.3 percent. Now that’s the lowest it’s been since 2008, but it’s still twice as high as the U-3. And what it reflects is that the U-3 rate’s decline is as much from people leaving the work force as it is from new jobs being created. There’s no way you can bring down real unemployment when you’re only creating 173,000 jobs a month.
So why does the U-3 rate even exist? What good is it to us? I would argue none at all. Why give us a statistic that ignores half the people who are affected in one way or another by unemployment? The only reasonable answer is that it makes politicians feel better to present you with a lower percentage. And while we can and should fault Obama for doing this, it’s nothing new. This has been a bipartisan dodge on the part of the political class for decades.
The bottom line is we have neither a strong job-producing economy nor a vibrant work force. Politicians don’t want you to know that, so they put out a phony number that papers it over. And the media don’t bother to tell you the real number, because the truth is they’re part of the political class too.