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Fletcher: The real unemployment numbers

March 26, 2013
Stephen Fletcher , The Alpena News

My Mom used to say "Liars figure and figures lie." She would use this expression mostly in regard to politicians and governmental officials.

My Dad had a different slant on folks and would advise us to "listen politely and then watch what they do in their actions afterwards." Both sets of maxims have merit.

The Consumer Price Index is like that. When many contracts and legal documents include the CPI as a measuring tool, it is to assure automatic increases will be triggered because of inflationary pressures. To some extent, it's probably a good aid toward attaining that goal.

However, the CPI doesn't account in its formula increases in food or fuel. If you are talking about labor contracts using the CPI as a wage inflator, then the wages won't keep up with what I call "Household Inflation." The reason is simple. Households spend the great majority of their cash on three items: Housing, food and fuel.

There is a mismatch between what is being measured by the CPI and how a household actually spends its money. The difference can be amazing. In February the difference in the annualized inflation measured by CPI was very large. As measured, the 0.2 percent CPI number equated to 2.4 percent annually while the CPI plus food and fuel was 0.7 percent, or 8.4 percent annually.

It is the same for unemployment statistics.

Unemployment levels as reported by the Bureau of Labor Statistics use a measure called U3. That number was 7.7 percent for February. The question is "what does it measure?" The U3 measures how many people are receiving unemployment compensation (UC) from the government. However, more important is what the number doesn't report.

Part-time workers who want full-time work are unaccounted for. These are the so called "under employed." If your benefits have expired, you also aren't counted. If you became discouraged and just gave up looking for a job you aren't counted either. Last, if you are working for cash wages part-time for someone but might like to have a tax-paying job, you aren't counted.

We can get to the "real" unemployment figures by taking a look at how many folks are actually working now as opposed to an earlier time as a percentage of the total population. That number has dropped from above 67 percent in 1999 to 63.5 percent today. Economist Harm Bandholz said this adds 3.6 percent to the unemployment numbers, pushing current unemployment to 11.3 percent if we hadn't had the decline in the labor force.

If we use that same logic, then February's national unemployment numbers goes from 7.7 percent to a whopping 14.3 percent.

It boils done to which government numbers you want to use to interpret the statistics. If you want to get re-elected use the U3 lower numbers.

However, if you want a job and can't get one you have a 50-50 chance of being in the higher category.

It seems like both Mom and Dad gave me good advice.

 
 

 

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