“Unemployment is at an 18 Year Low.” So Where is the Party?

by Dean Prigelmeier, President of Proactive Technologies, Inc.

For the May, 2018 unemployment report, the U.S. government announced it had reached an “18 year low of 3.8 percent.” Yet, millions of Americans who are still looking for a job, or for one job that sustains them and their family, are holding off popping the champagne…or even buying it. Why hasn’t the mood of American workers been more celebratory?

Politicians thinking about running, again, on the “strong economy” this Fall may be in for a surprise. In a recent Monmouth University poll, “only 12 percent of Americans said they benefited a great deal from recent economic growth, while 53 percent said that they’ve been helped ‘not much’ or ‘not at all.’”

Despite the low unemployment numbers, the percentage of working-age Americans who are employed today is actually lower than in 2008, with 1.3 percent fewer jobs waiting for college graduates compared to last year.

Any economist, not paid to tell you otherwise, would admit that one of the more puzzling aspects of the reported low unemployment is that it is missing the accompanying higher wages. If the demand for skilled labor increases, the supply of skilled labor declines. A shrinking supply brings higher prices…at least that is how it has worked.

Wages grew at a 2.6 percent rate – hardly able to erase the years of wage stagnation. The reported “inflation” rate for 2017 was 2.1 percent. Gas prices have risen on average $ .50 since last year, and many economists estimate the additional cost of fuel will wipe out any gains from the tax cut earlier this year.

The cost of necessities has continued to go up. Housing, healthcare costs – insurance, out-of-pocket costs, prescription drugs – still eroding consumer discretionary spending. At the same time government considers cutting support for Medicaid, food support and housing subsidies for the poorest among us. In many states, citizens have to pay a toll to travel on taxpayer-built highways to/from work. When they arrive at the job, they then have to pay $20 a day to park!

It is no wonder that, in the poll, only 32 percent of the country say this country is headed in the right direction; 52 percent say its on the wrong track.

The United States is a consumer-driven economy, and business leaders are rightfully concerned when more and more of the demand for their supply is on life support. So even if the reported unemployment rate was believable, many still wonder “why the hoopla?” Yes, things are better now than following 2008, but for many it doesn’t feel like pre-2008 levels, nor has it made up for what was lost in the years after 2008. Are the nearly 330 million Americans expected to accept this as the “new normal?” Who benefits when the media repeats the reported low unemployment rate, as if everyone’s worries are over, to an increasingly cynical audience? What good is the monthly University of Michigan consumer sentiment survey if inaccurate or overly optimistic news stories sway the results?

Many are wondering who calculates unemployment and how is unemployment determined? According to the United States Department of Labor – Bureau of Labor Statistics website, the organization responsible for collecting data and reporting unemployment among other economic measures upon which most of us make our decisions, the way unemployment is collected is as follows:

• “There are about 60,000 eligible households in the sample for this survey. This translates into approximately 110,000 individuals each month…” “The CPS sample is selected so as to be representative of the entire population of the United States….The Census Bureau then designs and selects a sample of about 800 of these geographic areas to represent each state and the District of Columbia. The sample is a state-based design and reflects urban and rural areas, different types of industrial and farming areas, and the major geographic divisions of each state.”
• “Every month, one-fourth of the households in the sample are changed, so that no household is interviewed for more than 4 consecutive months. After a household is interviewed for 4 consecutive months, it leaves the sample for 8 months, and then is again interviewed for the same 4 calendar months a year later, before leaving the sample for good. As a result, approximately 75 percent of the sample remains the same from month to month and 50 percent remains the same from year to year. “
• “Each month, highly trained and experienced Census Bureau employees contact the 60,000 eligible sample households and ask about the labor force activities (jobholding and job seeking) or non-labor force status of the members of these households during the survey reference week (usually the week that includes the 12th of the month). The information is collected using a computerized questionnaire.”
• “Each person is classified according to their activities during the reference week. Then, the survey responses are “weighted,” or adjusted to independent population estimates from the Census Bureau. The weighting takes into account the age, sex, race, Hispanic ethnicity, and state of residence of the person, so that these characteristics are reflected in the proper proportions in the final estimates.”
• “A sample is not a total count, and the survey may not produce the same results that would be obtained from interviewing the entire population. But the chances are 90 out of 100 that the monthly estimate of unemployment from the sample is within about 300,000 of the figure obtainable from a total census. Relative to total unemployment—which ranged between about 7 and 15 million over the past decade—the possible error resulting from sampling is not large enough to distort the total unemployment picture.”
• “Because these interviews are the basic source of data for total unemployment, information must be correct and consistent. Survey respondents are never asked specifically if they are unemployed, nor are they given an opportunity to decide their own labor force status. Their status will be determined based on how they respond to a specific set of questions about their recent activities.”
• “Similarly, interviewers do not decide the respondents’ labor force classification. They simply ask the questions in the prescribed way and record the answers. Based on information collected in the survey and definitions programmed into the computer, individuals are then classified as employed, unemployed, or not in the labor force.”

There are many reasons critics say the unemployment numbers are not reflective of “real unemployment” and maybe the measure has lost is usefulness as it is currently practiced. Some points of contention are:

• “The sample has to be incredibly representative to be accurate, and 60,000 households, 110,000 individuals, seems hardly able to credibly speak for the entire U.S. Population of nearly 330,000,000. State’s unemployment numbers might be questionable as well.
• What questions are asked to determine employment, gainful employment, at a time where there are an increasing amount of part-time workers, contract workers, “gig” workers and those considered to have “given up?”
• Is the survey biased from the outset since it is performed by computer and phone? Those chronically unemployed may have lost their phone service, cancelled their access to the internet or pawned their computer to survive. Once off the grid you may not be counted either way.
• For any survey, it is known that there can be an unconscious, or conscious, effort by the respondent to answer questions as they think they should be answered.
• Can there be intentional bias imposed on the survey to score political advantages or support policies that serve a few?

Who is counted as unemployed?

Again, according to the Bureau of Labor Statistics, “People are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Actively looking for work may consist of any of the following activities. Contacting: An employer directly or having a job interview; A public or private employment agency; Friends or relatives; A school or university employment center; Submitting resumes or filling out applications; Placing or answering job advertisements; Checking union or professional registers; Some other means of active job search.”

“There are a series of questions asked that are meant to determine if the respondent is unemployed. But it is the design of these questions that may be questionable. For example, if you reveal you live on a farm or the family has restaurant or business, and after years of job search you work hours in return for room and board, you may be considered employed depending how many hours you work.

The Bureau of Labor Statistics classify the employed as:

• All those who did any work for pay or profit during the survey reference week.
• All those who did at least 15 hours of unpaid work in a business or farm operated by a family member with whom they live.
• All those who were temporarily absent from their regular jobs because of illness, vacation, bad weather, labor dispute, or various personal reasons, whether or not they were paid for the time off.

The unemployed are:

• All those who did not have a job at all during the survey reference week, made at least one specific active effort to find a job during the prior 4 weeks, and were available for work (unless temporarily ill).
• All those who were not working and were waiting to be called back to a job from which they had been laid off. (They need not be looking for work to be classified as unemployed.)”

There are populations of the US that may slip through the cracks. For example, it is estimated that in 2016, 2,298, 000 people were incarcerated in the United States. And what about those released from incarceration over the last few decades and who are among the population? Are they part of the household survey or part of the post-survey weighting? Considering a felony conviction may disqualify a citizen from most employment, are these people considered “unemployed by choice” or circumstance?

According to the National Institute of Health, “10 million U.S. adults report misusing prescription opioids in 2012-2013 – which has doubled in 10 years.” Add to that those who graduated from prescription opioids to illicit and illegal drugs, this population is significant. Understanding that failure to pass a drug test may disqualify a job-seeker from employment may be an incentive to not even apply. Are these workers unemployed by choice or circumstance?

Losing one’s transportation to work may limit one’s range of employer prospects. Severe health issues or even visible health issues may lead employers to reject employment out of caution. According to the National Institute of Mental Health, “One in six U.S. adults lives with a mental illness (43.4 million in 2015). Mental illnesses include many different conditions that vary in degree of severity, ranging from mild to moderate to severe.” Some of these may be wanting a job but unable to actively look.

Those who lost their job, house, car and maybe even pension during the Crash of 2008 may want a job but cannot get the traction to move forward. Many who have seen their previously good credit rating (good enough to qualify for a home mortgage ) tarnished by the Crash of 2008 have seen this used against them in hiring. In effect, they are rated on how well they survived an economic collapse not of their making, rated by those complicit it its collapse. And if homeless and on the streets with no phone or physical addresses, chances for employment are slim. Are these Americans unemployed by choice or circumstance?

A survey is only as good as the representative sample, the method of sampling, the personnel administering the survey and the means of data analysis. So while there are many reasons to be suspicious of the unemployment number, the media seems ever so giddy when the number continues to decline to a “record low.”

Some economists suggest that they are part of the “second economy” that operates independently of the economy that all of the measures are meant to monitor. Perhaps their clients that advertise want to perpetuate the feeling that we are all equally successful so that no one questions the growing income and wealth inequality, and consumers continue to consume. Perhaps the Federal Reserve wants us all to know they are doing their mandated job of controlling inflation and unemployment with their monetary policies. It could even be a complete detachment from reality or it could be the media just reports what the Associated Press sends out.

Nevertheless, Statista reports the “underemployment rate” – the rate is created by adding unemployed workers, who are looking for work, to the amount of workers employed part time but seeking full-time work – as 12.5 percent as of July, 2017. Many economists say that the rate could be much higher.

This, added to the unemployment rate, is what may be bringing down broad-based economic growth. Additionally, stagnating wages that have remained flat since 1973, and the fact that many Americans spent the last 10 years crawling their way back to where they were pre-2008, and many more are still crawling, adds a significant headwind to wide-spread economic growth. Add into this the disadvantage class and as high as 25% of the population could be on shaky ground, with many more on a slippery slope.

As with the measure of inflation that was divided into types to confuse consumers and lead them to believe they didn’t need to ask for a cost of living raise since inflation was not noticeable, it appears that measures of employment/unemployment, job creation and job openings (i.e. everyone should know that many employers have such high turnover in hiring that they just leave their job advertisements up whether they are hiring or not) need a critical eye. Many feel our sources of economic data have been politicized and manipulated to serve a political end or a special interest purpose.

The student loan debt in the U.S. has reached $1.5 trillion. A debtor’s repayment begins when employed. Not only does the graduate have to worry about finding a job in their field, they have to make sure it pays enough to service the student loan debt and support the household.

The Credit card debt in the U.S. has continued to grow according to Nerdwallet. “Americans’ total credit card debt continues to climb in 2017, reaching an estimated $931 billion — a nearly 7% increase from the previous year — according to a NerdWallet analysis. And the average household that’s carrying credit card debt has a balance of $15,983. Households with any kind of debt owe $133,568 (including mortgages), on average, the data analysis found.

We all know, the consumer economy of today is driven more by credit than discretionary income. Borrowing and interest can offset lack of discretionary spending for a while, but that will one day come to an end. The U.S. personal savings rate continues to languish at a troubling low; from around 17 percent in the 1970’s to around 3.5 percent today. The longer the these numbers skew unfavorably for the masses, the longer it will take to recover and reestablish an all-inclusive economy within which businesses of all size can thrive. No low-wage. high population market will ever replace the purchasing power of the United States when it is running on all cylinders. Those who are tempted to learn this lesson the hard way jeopardize capitalism for all of us.

Business leaders should be careful not to allow sloppy statistical reporting and biased analysis and reporting to become the “new normal.” To turn a blind eye to all that we see around us not only determines our market but the society we live in, as well. Capitalism is nothing without trust.

As dedicated and hardworking the US Departments of Labor and Commerce staff are, they cannot escape the influence of outside forces. All of us should demand that the US Department of Labor-Bureau of Labor Statistics and the US Department of Commerce – Bureau of Economic Analysis be granted, by law, an established independence from political and economic pressure. The reporting of knowingly inaccurate information meant to benefit a narrow interest should be punishable.

Everyone in business relies on this data for long-range planning, as does the American consumer. The recent Crash of 2008 alone should be a clear example of why we need to be able to trust the economic analysis, and empirical data from which it is derived, to prepare for what is coming; to be able to take advantage of it or step out of the way. It is not too much to ask of taxpayer-funded institutions that accuracy, integrity and independence guide their efforts on behalf of all American people.

At a minimum, the caveat is this. Before letting our policy makers pat each other on the back and declare victory, those who have doubts should express them. We are all closer to the truth than we might think. To remain silent, unfortunately, implies acceptance and agreement.

Dean Prigelmeier is President of Proactive Technologies, Inc. – a leader in reality-based worker development through the accelerated transfer of expertise™. For a briefing on the power of the PROTECH© system of managed human resource development, take a few minutes and contact a representative today.