What’s the easiest way to reduce unemployment? Stop counting people

By now, I’m sure you’ve heard the controversy surrounding the unemployment rate drop for November. Only 120,000 new jobs were added, yet the rate dropped .4%. Generally, the reason is given as the number of people who have stopped being counted as unemployed. From the BLS release

In November, the unemployment rate declined by 0.4 percentage point to 8.6 percent. From April through October, the rate held in a narrow range from 9.0 to 9.2 percent. The number of unemployed persons, at 13.3 million, was down by 594,000 in November. The labor force, which is the sum of the unemployed and employed, was down by a little more than half that amount. (See table A-1.)

Table A shows a drop in the civilian labor force of 315,000. Mike Shedlock’s blog always has an excellent breakdown of the unemployment numbers. One of his readers sent in this chart.

The chart illustrates that for the first time ever, the labor force has flatlined for several years now. In fact, the reader crunched the numbers and found something missing.

If you look at the average labor force growth from 1948 to 2007 of 1,579,000 the labor force should have expanded by 6,316,000 2008-2011. Instead the labor force expanded by a mere 38,000!
Thus, 6,278,000 people are unaccounted for in the unemployment numbers based on historical averages.

Wow! How can this be? Over 6 million people unaccounted for? Starting when the recession of 2007 began? Did the BLS institute a new method of calculation? No. In fact, if you go to their website and research their methodology, you find that drastic change like we’ve seen is highly unlikely.

They determine the number in the labor force based upon the Current Population Survey (CPS). The CPS surveys 60,000 households each month to get their numbers. Here is a quote

Every month, one-fourth of the households in the sample are changed, so that no household is interviewed more than 4 consecutive months.  This practice avoids placing too heavy a burden on the households selected for the sample.  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.  This procedure results in approximately 75 percent of the sample remaining the same from month to month and 50 percent from year to year.

The last sentence seems key. 75% of the sample remains the same each month and 50% year to year. Yet, we had a loss of over 6 million people from the labor force? Half of the survey households remain the same every year so how is such an unprecedented change possible?

Smell a little fishy? At best, this shows the numbers cannot be trusted. At worst, the BLS is in the tank for Obama to get the unemployment number down below 8% prior to the election. Bottom line is that the situation is not improving as the White House continues to claim.

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