Unemployment At Highest Level In 15 Years: Or Is It Even Worse?

The unemployment rate spiked to 7.2% in December, the highest level since the early Clinton administration.  That’s pretty bad, but predictably, many malcontents are claiming the “true” unemployment rate is even higher.  John Williams of Shadowstats (link withheld intentionally) claims the real number is closer to 17.5%.  Pardon me while I laugh hysterically.

Are Unemployment Statistics Manipulated?

Similar to the CPI, there are many misconceptions and falsehoods floating around about the BLS’s unemployment number and concerns they are manipulated by the government.  However, it is unlikely the government could get away with manipulating job figures even if they wanted to (and we must assume they do) for a multitude of reasons.

1. The data is publicly-available – Don’t trust the government?  Nobody is asking you to.  The data sources are publicly-available.  Anybody with an understanding of statistics could verify the numbers themselves (and many, many do).  It’s a safe bet the government isn’t engaging in any outright mathematical fraud based on how many independent people and organizations are running the numbers searching for any inconsistency.
2. The methodology is publicly-available - The methodology used by the BLS is also publicly available.  In fact, the model is very often debated by some of the most brilliant economic and statistical minds in academia, both within the U.S. and abroad.  You can certainly argue that the methodology used is inaccurate (there is no such thing as a perfectly-accurate system), but you absolutely cannot honestly and with a straight face argue that the government is intentionally withholding or manipulating anything.  It’s all right there.  If you choose not to double-check it yourself or think critically about all the issues involved, that’s your problem.  But the opportunity is available to every American.  A charge of manipulation requires intent to deceive.  If the system is completely transparent, how can you attribute to the BLS an attempt to “deceive” anybody?

What Problems Do The Nay-Sayers Have With It?

1. It doesn’t count discouraged workers - Well, are discouraged workers who quit looking for work REALLY unemployed in the sense meant to be portrayed in the official unemployment statistic?  That is certainly open for debate and both sides make good points.  The problem I have is when people like John Williams claim “well, before 1994 discouraged workers were counted as unemployed” as if the pre-1994 statistic was the epitome of perfection.  I call BS on that argument and here’s why:  it relies on everything in the past being a golden age, a model of perfection.  Since no statistical system of any complexity can ever be perfect, William’s assertion can be soundly rejected as nostalgic crap.  Who’s to say the statistic before 1994 was correct?  If you want to make that argument, you must logically first prove the previous methodology was the superior one.  Otherwise, you are guilty of basing your entire argument on a false premise.  Simply asserting something as a fact doesn’t make it true.
2. It doesn’t count people who aren’t collecting unemployment – Yes it does.  This is a very common misconception for some reason.  Read the unemployment FAQ for more info.

Why The Discrepancy?

As it turns out, there are actually a lot of different ways to define “unemployment.”  The primary mistake most malcontents seem to make is insisting their definition is the only true and correct definition.  This is pretty arrogant and for that matter, unnecessary.  The actuall number, whether 7.2% or 7.5% is fairly irrelevant.  What really matters is the trend.  Three months ago, the rate was 6.2%.  Today, it’s 7.2%.  Since the methodology hasn’t changed at all, we can conclude unemployment is significantly worse today than in September.  Is this number exact down to the 9th decimal place?  No, but neither are John Williams’ number.  What matters is the trend.  As it turns out, so long as the methodology is consistent, transparent, and applied in a disciplined manner, it yields valuable information.

I leave you with a classic appeal to authority fallacy by my favorite fake statistician:

“…If you don’t think the system is political, you don’t know the system…”

Right, because you are the only one who knows the system and what’s more, you know it perfectly.  Always.  Yes, that conclusion is much more likely than simply assuming you’re full of crap.

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