Debunking Gallup's "Big Lie": 5.6% Unemployment Rate

5.6%.  It's a lie!

So reads the headline at an article found at the Gallup website written by the Gallup CEO, Jim Clifton.  Clifton claims that the current 5.6% unemployment rate is "extremely misleading".  Every time the unemployment rate goes down, people jump on the "misleading" bandwagon, though I haven't seen a report on this from the Gallup CEO before.  I can imagine that we will see him on the rightie talk radio and Fox News circuit pretty soon.

Let's pull apart Clifton's article one paragraph at a time:  

If you, a family member or anyone is unemployed and has subsequently given up on finding a job -- if you are so hopelessly out of work that you've stopped looking over the past four weeks -- the Department of Labor doesn't count you as unemployed.

You aren't counted if you don't look for work.

That's right.  The BLS has NEVER counted such people as unemployed.  But what the Gallup CEO doesn't tell us is WHY the BLS doesn't count those people as unemployed:  Because you can't get a job if you aren't looking for work.   The jobs fairy is not going to sit on your head and anoint you with a job.  You need to be LOOKING FOR WORK to get a job.  

And the Gallup CEO doesn't mention that this is an INTERNATIONAL standard.  In every country that reports unemployment numbers (not just the US), people aren't considered as unemployed unless they are ACTIVELY looking for work.  Now let's say your stereotypically lazy but able middle-aged brother-in-law wants to live on your couch because he is "hopelessly unemployed".  You ask him when he last looked for work and he blubbers about and finally confesses that he hasn't looked for a job since 2011.  Come on, really.. How sympathetic will you be?  Perhaps before giving up your couch or your basement you will tell him that he really should start looking again as the job market has improved dramatically since 2011?        

Clifrton writes:  While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news -- currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren't throwing parties to toast "falling" unemployment.

I'm not going to get into the 30 million number here.  The Gallup CEO doesn't bother to tell us where he came up with that absurd number.  But by definition, you are not as "unemployed as you can possibly be" if you aren't looking for work.   

The unemployed keep looking.. They really do!

I will say that I've known a lot of people who have been out of work over the past seven years. Some of them have managed to age into retirement.  Some have gone back to school and started doing something else.  Many, many, many have been hired, and many of those initial temporary hires have turned into full-time jobs.  But do we really have millions of people sitting around for YEARS moaning that they can't get hired-- and they are SO discouraged that they haven't looked for a year or two or three?  "I really want a job, but I am SO discouraged that I haven't bothered to look for work for years." That just isn't happening.to people I know.  The people I know who have been most concerned about being unemployed KEEP looking.  The standard to being considered unemployed by the BLS is really not that high:  ONE effort to find work in terms of submitting a resume or application, or talking to a prospective employer a month.  At least ONE such effort a month.  That's it.  

Are there people who have stopped looking for work for a year or more?  Yes, but many of them aged into retirement or have a working spouse.

There is something called the BLS Flows report that, among many other things, will tell us how many people who were unemployed one month decided to stop looking the next month (the people who have "given up" looking for work).  I'll publish more about that later, but that number HAS been going down-- dramatically, and it is also lower than it has been since 2008.

Out-of-Work Engineers Mowing Lawns

Clifton writes:  There's another reason why the official rate is misleading. Say you're an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 -- maybe someone pays you to mow their lawn -- you're not officially counted as unemployed in the much-reported 5.6%. Few Americans know this."  

The fact that such people are not counted among the unemployed is true, but it has ALWAYS been true.  And most such people will fall into the "involuntary part-time" bucket.. the numbers of which have been going down every month.  The percentage of working people considered "involuntary part-timers", which was about 3% in the mid 2000's, started climbing in 2007 and peaked at 6.7% in early 2010.  It's come down quite a bit and the percentage declines every month.  It is now 4.6%..  clearly better than it was, but we still have a ways to go in terms of providing full-time jobs for all of the people who want full-time jobs.  (The lowest this number has EVER been was about 2.3% in 2000.  Even in the 2000 boom year we had over two million people who wanted a full-time job but could only find part-time work.)

STEM Professionals Working at Burger King

"Yet another figure of importance that doesn't get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find -- in other words, you are severely underemployed -- the government doesn't count you in the 5.6%. Few Americans know this."  

Now, come on, Gallup CEO.. Do we really have people out there with degrees in math or chemistry that are working 10 hours part-time... and aren't in graduate school?  First of all, if this is true, it has always been true; the calculation has NOT changed recently.  Secondly, Gallup presents no evidence as to how many people with desired STEM degrees are working part-time at the local Burger King or some similar place.  And, if there are still hundreds of thousands of such chemists working at Burger King, is that number going down or going up?  He's just pandering to the know-nothings and I'm not sure why. 

Gallup's Employment Participation.. Sounds like a good measure... except....

"Gallup defines a good job as 30+ hours per week for an organization that provides a regular paycheck. Right now, the U.S. is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America's middle class."  

Hmm.. Well, maybe this is the "why" to the previous paragraph:  He wants people to jump on Gallup's standard as THE standard.  BUT:  There is one thing that the BLS data does that the Gallup data doesn't do:  Gallup makes no attempt to figure out who really WANTS a job.  That is why the official unemployment rate is based on people out there and looking, vs. people who are retired, disabled, at school, at home with kids.  (And the Gallup unemployment rate has remained remarkably consistent with the BLS' non-seasonally adjusted unemployment rate.  Not sure  why he doesn't mention that.)

Let's look at this staggeringly "low rate of 44%"  First of all, we have a staggeringly HIGH number of people who are retiring.  We have also had, over the past 15-20 years, a staggeringly HIGH number of people who are in school after they are 18.  The only way that this "employment participation" figure means anything is to look at people 25 to 54 years old (or, better yet), 29 to 49 years old, the VERY prime working age people, and determine what percentage of them have full-time jobs.  But you still have to figure what percentage of them WANT full-time jobs, and I'm not sure that data is available.

Then this "We need that 50%".. not sure where this is coming from, and does this mean that the Gallup CEO wants to force retirees back into the work force?  I doubt it, but the only way you can increase this number with a declining primary aged population and an increasing retiring age population might be to force older people (who really want and need to retire) back into the work force.  I really don't think that Gallup CEO wants that.. and would Gallup actually hire any of these former retirees?  I doubt it.  So talking about the "population 18 and over" is balderdash and nonsense.  Let's look ONLY at primary aged workers, which I do below.Now Gallup's standard for full-time work is "a good job (is) 30+ hours per week for an organization that provides a regular paycheck."  That 30 hours a week is LOWER than the BLS' 35 hours a week used to define full-time workers.  But it does exclude the self-employed, apparently assuming that most self-employed people don't make a "regular paycheck". Not sure if that is fair.   And, as I said above, this Gallup standard would only be meaningful if it were age-adjusted.  

Employment Participation ALL 18 and over compared to Prime Full-Time Workers.

So as we don't have Gallup's raw numbers, let's look at the number of prime age workers working full-time as a comparison of the prime age population from the data we do have available; that is, data from the BLS.  According to the BLS (without pulling out part-time workers, which I'll attempt to do at some later date), the percentage of people over 18 who are working dropped from 63.2% in 2008 to 60.6% in 2014, though it did actually increase slightly in 2014.  But it's been remarkably stagnant during these recession years for the simple reason that we have so many people aging into retirement.   (See graph above.)

Now let's look at this same data if we only look at primary aged workers, thus eliminating the huge numbers of retiring Baby Boomers:  The employment ratio of ALL primary working aged people 25-54 compared to all people 25-54 is now 76.7%, the highest it has been in six years. It was 70% in 2008.  The highest this number has EVER been is 81.5% in the year 2000.     

Working full-time?  The percentage of people 25-54 who are employed FULL-TIME (see graph above) peaked at about 73% in 2000 when compared with the last 30 years.  It dropped down to about 65% during the depth of the recession, and it has now climbed back up to 67%.  (In the golden Reagan year of 1986 (snark), this percentage was a whopping 68%.  Was the Gallup CEO writing columns back in 1986 talking about the horrible percentage of full-time workers?  I doubt it.)   

What does this all mean?

What to make of all of this? The official unemployment rate is and always has been a generally accepted gauge of the health of the economy and the health of the labor market.  It isn't perfect, and it includes a lot of stuff, both good and bad, that isn't really accurate.  It counts, for instance, high school kids who want a part-time job.  It counts college students who want a part-time job.  I'm not sure if either of those two groups should really be counted in calculating an official unemployment rate.  It counts people who want part-time work.  If you only WANT a part-time job, are you really in desperate straits?  Perhaps the unemployment rate should only include people who are NOT in school and ONLY looking for full-time work.  It would look quite different, much lower then.  Perhaps it shouldn't include people looking for work when there is another wage earner in the house who makes a good, solid buck, enough to support the whole family.  That would decrease the unemployment rate as well.   

Or perhaps the unemployment rate should include people who want and need really want to work but can only find temporary, part-time, or lousy McJobs.  Then the unemployment rate would be higher.

So.. the standard unemployment rate is what it always has been:  A good, quick, simple indicator of the health of the economy.   But it is NOT a precise indicator of how many people are living in misery or poverty due to lack of employment.  Never has been; probably never will be.