by Ray Keating
The Keating Files – October 20, 2020
Throughout my career as an economist, one of my pet peeves has been the unemployment rate. It’s widely cited by the media, politicians, and even fellow economists, yet it can be a grossly misleading economic indicator.
Why does the unemployment rate get so much attention? Well, it’s supposedly a straightforward picture of what’s happening in terms of jobs. After all, if the unemployment rate increases, that’s bad news; and if the unemployment rate drops, that’s good news. So, if you need a reliable number that tells the story on people working or not, just look at the unemployment rate, right? Well, no.
It turns out that a rise in the unemployment rate can occur when the jobs market is improving, and a drop in the unemployment rate can happen when the employment situation is getting worse.
The latest jobs data on New York provides an example that probably would surprise most.
For September, the U.S. Bureau of Labor Statistics reported that the New York unemployment rate dropped from 12.5 percent in August to 9.7 percent in September. In addition, the number of unemployed declined from 1.19 million in August to 884,650 in September.
That all great, right? Again, the answer is a resounding “no.”
It turns out that the labor force in New York declined from 9.5 million in August to 9.13 million in September, and employment actually dropped from 8.31 million in August to 8.25 million in September. That is, the labor force decline by 362,889 and employment fell by 60,867.
Wait, employment fell and the unemployment rate declined? How does that work? Well, it turns out that the decline in the unemployment rate was all about a declining labor force. The unemployment rate is calculated as the number of unemployed as a share of the labor force. Leave the labor force, and you’re no longer counted.
So, New York’s unemployment rate didn’t fall in September because the number of employed increased (indeed, the number of employed actually fell), but because a large chunk of people simply left the labor force altogether.
What’s better than the unemployment rate in terms of gauging the jobs market? Two measures – the labor force participation rate and the employment-population ratio. And it turns out that both declined in New York in September.
The New York labor force participation rate (the percentage of the civilian noninstitutional population 16 years and older that is working or looking for work) declined from 60.8 percent in August to 58.5 percent in September, which is a drastic falloff. And the employment-population ratio (the percentage of the civilian noninstitutional population that is employed) in New York dropped from 53.2 percent in August to 52.8 percent in September.
So, to get the real story on the jobs market, toss aside the unemployment rate, and look at the numbers that actually matter. When doing that, it turns out that the jobs story for New York in September was quite negative.
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Recent and Related Columns by Ray Keating…
“Is Trump Turning Texas Purple?”
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“Polls Before the Dreaded Presidential Debates”
“Voting Your Conscience Isn’t Wasting Your Vote”
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Ray Keating is a columnist, novelist, economist, podcaster and entrepreneur. You can order his new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York from Amazon or signed books at RayKeatingOnline.com. His other recent nonfiction book is Free Trade Rocks! 10 Points on International Trade Everyone Should Know. The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?
Keating’s latest novel is The Traitor: A Pastor Stephen Grant Novel, which is the 12thbook in the series. The best way to fully enjoy Ray Keating’s Pastor Stephen Grant thrillers and mysteries is to join the Pastor Stephen Grant Fellowship! For the BEST VALUE, consider the Book of the Month Club. Check it all out at https://www.patreon.com/pastorstephengrantfellowship
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