'Official' numbers don’t reflect all of unemployed

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Sunday, February 27, 2011
— Allen Porter hasn’t worked since losing his job at a Rock County manufacturer in June 2008, but in the technical world of labor statistics, Porter until recently was not “unemployed.”

The 47-year-old Beloit man exhausted more than two years’ worth of state and federal unemployment benefits and is working toward an associate degree in human resources management at Blackhawk Technical College.

Until last week, he was one of the estimated 4.9 million Americans left out of the U.S. Department of Labor’s official unemployment count because they’ve grown so discouraged that they’ve simply given up the job hunt.

“I’m basically one of the forgotten when it comes to the so-called ‘official’ unemployment statistics,” said Porter, who lost his job as a CNC machine operator at Durst in Shopiere.

Porter job hunted in vain for about a year after he was laid off. Eventually accepted into the BTC program, he gave up the job hunt. Last week, he again started applying for jobs. That put him back into the “official” ranks of the unemployed.

He prefers to find a second-shift job that would let him continue his schooling, keep making mortgage payments and care for his daughter. He figures he’s got about a month before he either puts his house up for sale or finds a job sufficient in wages and hours.

When Porter sees the local unemployment rate drop—as it’s done for six straight months—he wonders where the jobs are that are supposedly improving the rate.

The reality is that it’s not a flood of new jobs or growth in the labor force that’s driving the unemployment rate down.

Instead, it’s caused in large part by of an exodus of people such as Porter from the local labor pool, said Heidi Shierholz, an economist with the Economic Policy Institute, an independent, non-profit and non-partisan research institute based in Washington, D.C.

An accurate measure?

The Janesville area’s unemployment rate fell in the last one-third of 2010, breaking a 20-month string of double-digit rates.

On its face, that’s good news.

But does it really provide an accurate reflection of employment in the Janesville Metropolitan Statistical Area?

Yes and no, Shierholz said.

Yes, because the rate is a benchmark that’s been measured essentially the same way for decades. It’s a vehicle for comparison from month to month or year to year.

No, because like most economic indicators, the unemployment rate is derived from statistics, educated guesses and incomplete information.

In its most official form, an area’s unemployment rate is the number of unemployed divided by the labor force.

For example, the Janesville area had 78,893 people in its labor force in December 2010, according to the Bureau of Labor Statistics. There were 7,294 people unemployed. Divide the latter by the former, and the result was 9.2 percent, which the bureau published as the MSA’s unemployment rate.

That’s where the simplicity ends.

Since 1940, the bureau has tracked a continuum of “labor underutilization” numbers. They start narrow and become broader, and the official unemployment rate is near the middle: “total unemployed as a percent of the civilian labor force.”

What the official rate doesn’t include is fundamentally more problematic, particularly in economically hard-hit areas such as Janesville.

It excludes “discouraged workers,” “marginally attached workers” and people “employed part-time for economic reasons.”

Because so many people aren’t counted, the official unemployment rate makes the local employment situation appear much better than it actually is, said Shierholz, who holds master’s and doctoral degrees in economics from the University of Michigan.

“The unemployment rate improves, and everyone says, ‘Woo hoo!’” Shierholz said. “But in these times, it doesn’t actually signal any improvement.

“The unemployment rate is artificially low.”

Missing in action

The Bureau of Labor Statistics does not track labor underutilization numbers at the local level, primarily because sample sizes are too small, a spokeswoman said. But it does have six measures of unemployment for each state.

In Wisconsin in 2010, for example, the official unemployment rate was 8.7 percent.

But factor in the state’s “discouraged workers” and the number jumps to 9.2 percent. Throw in the “marginally attached workers” and the rate goes to 9.7 percent. Then add in the underemployed, and the state’s rate becomes 14.8 percent.

Clearly, that presents a far different employment picture for Wisconsin, and Shierholz said the same could be surmised for local areas such as Janesville.

Shierholz said the current unemployment rates are understating slack in the labor market because so many people have either dropped out of the labor force or have never entered it.

“For many of the people, it’s been a horrible experience,” she said. “They’ve knocked on every door in town 25 times and have now given up and decided to go live on their cousin’s couch. “There are plenty of those stories, but not everybody fits that profile.”

Others, she said, simply delayed their entry or reentry into the workforce.

“Some people, particularly younger folks, look around at the landscape and decide they’ll stay in school and get another degree,” she said. “Another example would be the woman who had a baby a few years ago and planned to go back to work. But now she has a kindergartner and decides the best option is just to stay at home.”

As the economy improves and jobs are added, Shierholz said the unemployment rate will either grow or its decline will slow dramatically.

“When we start adding jobs, all these people who knocked on all those doors before giving up will see their neighbor get a job,” she said. “When they see that, the minute they fill out their first application, they’re back in play and in the labor force, and you’ll see the unemployment rate go up.”

It’s a case of simple math, she said.

For example, if a local economy has a labor force of 100,000 and 6,000 people officially unemployed, the unemployment rate would be 6 percent.

But factor in the 2,000 jobless people who were discouraged and not counted. Once they start looking for work, the labor force will grow to 102,000, and, assuming they don’t get a job right away, the number of unemployed would grow to 8,000.

That would boost the official unemployment rate from 6 percent to 7.8 percent.

Shierholz said such an increase initially would temper improvements in unemployment rates that have been dropping.

“Often, there’s a lot of churn in the labor market,” she said.

Fewer people working

For a better perspective, Shierholz prefers to look at the employment-to-population ratio, a statistical measure of the proportion of the country’s working-age population that is employed.

In October 2009, that national rate was 58.5 percent. Last month, it was 58.4 percent, which indicates a decrease in the number of working-age people with a job.

The national unemployment rate, however, was 10.1 percent in October 2009 and dropped to 9 percent by last month, which Shierholz said paints an artificial—and rosier—picture of the employment situation.

“When you say things are improving, it’s only good if a bigger share of the population is working, and that’s not the case,” she said.

That’s not a news flash for Porter, who’s run out of unemployment benefits and is paying living and education expenses with mounting student loans.

He’s again looking for work, even a first-shift job that could potentially put an end to his schooling

“My priorities are changing,” he said. “I’ve got to keep a roof over our heads.”

In a perfect world with a second-shift job, he’d continue his work at BTC, graduate in December and land a job in the human resources field.

Still, he’s concerned.

“I realize that I’m going to be 48 years old and probably not one of the most desirable employees,” he said. “There’s lots of young people out there, and I’m competing with four to five times as many people for the same position.

“My unemployment benefits are gone, and I understand that Congress had to stop somewhere, but I think it comes at the expense of a lot of hardworking Americans.

“There are a lot of middle-age, middle-class people who are hurting.”

Last updated: 4:12 pm Thursday, December 13, 2012

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