The Trickiness of Unemployment Statistics

The most recent jobs report came out and the results were seen as rather dismal.  The numbers for May showed the fewest number of jobs created in the U.S. since September 2010, nearly 6 years ago.

The statistics show there are currently just over 144 million payroll jobs in the U.S.  But about 29% of the eligible population (16 and older) is not in the labor force.  This is almost 95 million Americans.

These are really complicated numbers and I am not aiming at analyzing them here.  I just want to point out the many variables and the many reasons for changes in the numbers.

As many economic bears like to point out, the official unemployment rate is likely understated because it includes those with part-time jobs (some of whom would like full-time work).  In addition, the unemployment statistics don’t count those who have simply given up looking for work.  It is true that some people just may give up because they can’t find a decent job, or at least a job that pays something that is worth it to them.

I believe that the critics of the unemployment statistic are correct that they are probably understated.  However, they probably aren’t as understated as what they make them out to be.

For example, some people may want to work part-time.  In addition, some people may stop looking for work for reasons other than just not finding a job.  A family might decide that it is better for the mother/ wife to stay at home with the kids rather than pay for daycare.  Maybe she could find a job making $25,000 per year, while daycare for two kids would cost $15,000 per year.  When you factor in taxes, she might only be netting a few thousand dollars per year, which just isn’t worth the effort.

In addition, we have to consider that some people do work under the table, or in the black market.  There are people who find part-time work who don’t report their incomes.  These do not get counted in the employment numbers.

As far as the total number of Americans not participating in the labor force, there are again many variables.  Some might be having difficulty locating work.  Some couples may just find that it isn’t worth it for one of them to work because of the higher marginal tax rates.  If one person makes $100,000 per year and the spouse could make $20,000 per year, it makes sense for the spouse to stay at home, especially when the net pay will end up being closer to $12,000 after taxes.

There is also a factor of retirement and early retirement.  Some people may decide to retire a little earlier than planned and just cut expenses more, since they can’t find a job that pays nearly as much as what they were previously making.

Sometimes unemployed people is good news.  Maybe it means increased savings or income.  If a family elects to have one of the parents stay at home, maybe that just means that one of the parents is doing well enough for that to happen.  Unfortunately, on the flip side, taxes can be a large deterrent to working, which distorts the job market.

There is also an argument to be made that taxes can encourage more work because people need to earn more to make up for the lost money in taxes.  This is probably the main reason there are more families with two working parents than what existed in the 1950s.

In terms of retirement, you could have a situation where someone does very well and decides to fully retire at age 55.  This is not the common situation, but it does happen.  In this case, the person exiting the work force is a sign of good economic news.

Again, I didn’t set out to come to any conclusions with all of this.  I just want to point out that there are many reasons and variables to consider when looking at jobs numbers.  It is not all good news or all bad news.

Overall, I am a short-term bear on the economy.  I think the one statistic that matters is real income, which is basically flat.  If price inflation is understated, real incomes are probably down significantly.  Most people are finding that their raises don’t even cover the increasing costs of health insurance.

There is little question that the American middle class is struggling more today than it has in the past.  We are far better off in terms of technology and certain aspects in our living standards.  But in terms of income as compared to the costs of basic needs, things are stagnant at best.

That is why I expect some kind of a major correction.  We need a correction to reallocate resources and to lower prices so that things are more affordable.  It will be painful, but it is needed.  The longer it is delayed, the more painful it will be.

I’ll keep watching the jobs numbers, but they do not give us the overall picture because of the many variables.

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