Monday, May 7, 2012

The Most Important Jobs Number

Good late evening! 

Last week, the Bureau of Labor Statistics released the monthly employment numbers, showing what happened with jobs in April.  There were 115,000 net new American positions created, and the unemployment rate dropped from 8.2% to 8.1%.

Does the former explain the latter?  No!

The United States needs 125,000 to 140,000 net new jobs just to cover population increase.  Therefore, unemployment should have stayed the same, or maybe increased a tenth of a percent.  Why didn't it?  The answer is easy.  More people left the labor force. 

The unemployment rate is calculated as

1 - (# Americans with jobs)/(# Americans in the labor force), expressed as a percentage. 

So if there were 10 Americans in the labor force of whom 9 were working, the unemployment rate would be

1 - (9/10), or .1, expressed as 10%.  

As you can see, the unemployment rate is not tied to the number of Americans overall, but to the number in the labor force.  In order to be in the labor force, you must be either a) working, or b) not working AND applying for at least one job in the previous month.   So if you stop looking, you drop out of the denominator of the above fraction, making the rate lower than it would be if you were still trying to work - pounding the electronic pavement or whatever it is you were doing.    Yet you are not on the job - you have just stopped officially trying to get one.

So how many people left the labor force in April?  Applying simple algebra, we find that if there were 140 million Americans working in March, increasing to 140.115 million in April, we see that in order for the unemployment rate to decrease as above, the labor force must have shrank from about 152.505 million to 152.465 million.  So despite a net increase of about 132,500 Americans reaching working ages, the labor force dropped about 40,000.  The labor force, in fact, is now under 60% of the population, and is reaching decades-long lows. 

The most important jobs number is none of these, though.  It is the total count of Americans who want to work full-time and are not.  They now number about 32 million - 12.5 million officially unemployed, 9 million working part-time who want more, and 10.5 million who say on surveys they want to work, but are discouraged.

THAT, not the unemployment rate, the number of new jobs, or even the count of people who filed for unemployment benefits last month, is what we need to minimize.  And unlike the other tallies, it only rates to increase.   So if you are working - please, save some money.

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