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Unemployment Figures: Are the ones we get in the Media always Reliable?

August 15, 2009

When a person loses their job the effects are traumatic. When job loss results from corporate malfeasance and is not related to employee

performance the sense of grievance felt is doubly painful.  Chronic unemployment frequently leads to forms of social violence

such as child abuse, spousal ( usually wife) abuse,  alcohol or other drug abuse,admission to mental institutions, homicide and suicide.

 Invariably, job loss leads to loss of self esteem and the humiliation for some families of loss of their home and  reliance on food kitchens and volunteer food banks for daily sustenance.  For all these reasons administrations are prone to lowering the numbers of those said to be unemployed.  For all these reasons it is important to have access to reliable figures on the numbers of unemployed persons.

The following analysis of unemployment figures is by Dr. Jeffrey Stewart:

Dr. Jeffrey Stewart is  a professor of economics at the University of Cincinnati and has his doctorate in economics from the New School for Social Research at the New School in New York City.

August 8, 2009 

 

There was great hoopla in the capitalist, corporate media and on some blogs over the “good news” on the labor market from the Bureau of Labor Statistics.  The unemployment rate fell from 9.5% to 9.4%.  There are currently 14,462,000 people officially counted as unemployed in the US! 

 

The unemployment rate is calculated according to the ratio of the number of unemployed/civilian labor force.

 

It is noteworthy that both the number of people counted as unemployed and the number in the civilian labor force dropped in July.  The former fell by 267,000 (-1.8%) and the latter by 422,000 (0.27%).  The unemployment rate fell because those counted as unemployed dropped by a greater percentage than those counted in the civilian labor force.

 

For this number, known as U3, to have more meaning, it is important to know how it is calculated and who is included in this number and who is not.  It will be clear below that the unemployment rate is not an accurate measure of the economy’s ability to provide jobs for everyone wanting to work, never mind at a living wage.

 

The Bureau of Labor Statistics of the US Department of Labor calculates this unemployment rate monthly.  It is usually released on the first Friday of the following month at 8:30 a.m.   There is another, different survey done monthly known as the Establishment Survey.  247,000 more people lost their jobs in July according to this survey’s calculations.

 

CURRENT POPULATION SURVEY:

 

Every month during the week containing the 19th the Bureau of Census conducts the Current Population Survey for the Bureau of Labor Statistics.  The Current Population Survey divides the 3,137 counties and county independent cities in the country into 1,973 geographic areas.  The Bureau of Census designs and selects a sample of 754 of these geographic areas to include all 50 states and the District of Columbia.  The 754 of these geographic areas is divided into 300 household enumeration districts.  The enumeration districts are divided into 75 clusters with 4 households each.  Then the clusters to be interviewed are chosen randomly using statistics.  In all, approximately 60,000 households are eligible for interview each month and represent approximately 1 out of every 1,600 households in the country. 

 

This sample is a “state-based design” and reflects urban and rural districts, different types of industrial and farming areas, and the major geographic divisions of each state.

 

Each month ¼ of the households interviewed are new to the survey.  These new households are interviewed for 4 months and then they drop out for 8 months.   One year later they are interviewed for the same 4 consecutive months and then leave the survey for good.  Thus, about 75% of the sample is the same from month to month and 50% is the same from year to year.

 

Approximately 1600 highly trained and experienced workers from the Bureau of Census survey each of the 60,000 households and ask questions of household members during the reference week containing the 12th day of the month.  The first time a household is in the survey, the highly trained and experienced worker from the Bureau of Census goes to the home.

 

These Bureau of Census workers ask a series of questions to determine the labor force status of household members.  By the responses, the household members are classified as employed, unemployed or out of the labor force.

 

OUT OF THE CIVILIAN LABOR FORCE:

 

Those household members who are out of the civilian labor force and are not in the numerator or the denominator of the unemployment rate calculation from the get go are:

1) Under 16

2) Institutionalized (big house, the hoosegow, the clink, the cooler, stir, up the river, jail, the pokey, prison) however you want to put it, they are in jail.  One cannot be expected to look for a job let alone hold one if one is a “guest of the state.”3) Long Term Disabled

4) Students (Unless the student has a job, in which case the labor force activity takes precedence over non labor force activity, then one is counted as employed)

5) Military

6) Unpaid Domestic Labor (Housewives and Househusbands)

7) Work less than 15 hours in a family owned business or farm without pay

8) Retired

9) Homeless

10) Marginally Attached

11) Discouraged Workers

 

These groups of people are out of the civilian labor force from the beginning and are not counted as unemployed even though they may want to work and are not working.

 

EMPLOYED:

 

One is counted as employed if one answers yes to any of the following 4 questions:

1) In the past week, did you work at all for pay or profit?

2) Did you work in your own business, profession or on your own farm?

3) Did you work 15 hours or more without pay in a family owned business or farm?

4) Do you have a job and did not report because of a) vacation b) illness c) childcare problems d) other personal or family responsibilities e) maternity or paternity leave f) labor dispute g) weather

 

UNEMPLOYED: 

 

 

There are two different criteria for being unemployed.

1) One is counted as unemployed if one is on layoff from a job and a) has been given a date to return to work OR b) expects to be recalled within 6 months.

 

2) One is counted as unemployed if one answers yes to both of the following two questions:

a) In the past 4 weeks, did you make a specific effort to find employment?

b) If a job were offered, would you be available to take it? 

 

So, if one is on layoff and meets either of the two additional criteria or answers “yes” to the last two questions, then s/he is counted as unemployed.  If one answers “no” to the first question or “no” to either one or both of the last two questions then s/he is not working, s/he doesn’t have a job, but is not counted as unemployed.  Therefore, s/he is not in the numerator or the denominator of the Bureau’s official U3 calculation and is not working, but not counted as unemployed.

 

MARGINALLY ATTACHED AND DISCOURAGED WORKERS:

 

One is “marginally attached” to the labor force if one wants a job, has looked in the last 12 months (the last year), but did not look in the last four weeks for some reason.

 

“Discouraged workers” are a subset of the marginally attached.  A discouraged worker, wants work is available for work, looked sometime in the past year, but didn’t look the last 4 weeks specifically because they believe there are no jobs out there, a “job market related reason” according to the BLS.

 

In the July 2009 survey, 2.3 million people were classified as marginally attached.  They want work, aren’t working, but aren’t counted as unemployed or part of the civilian labor force.

 

The number of people wanting full time jobs, but are working part time for economic reasons, are known by the BLS as “involuntary part timers.”   There were 8.8 million involuntary part timers.

 

U6: 

 

The BLS calculates an unemployment statistic, known as U6, including all of the marginally attached and “involuntary part timers.”  This is a more comprehensive measure of the unemployment phenomenon and measure of the economy’s ability to provide jobs.  The sum of the officially unemployed, marginally attached and one-half of involuntary part timers for July 2009 is 16,766,400 or 2,304,400 more people unemployed than the official U3 number.  Including these people in the numerator and adding the marginally attached to the denominator yields the U6 unemployment rate.  U6 for July 2009 is 16.3%.

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Further Reflections on Profit by Patrick D. Joyce

August 5, 2009

PROFIT

 

The main stream media normally refers to profit incorrectly as “earnings”. “Earnings per share” is a standard way to track the performance of a corporation.

 

This approach, however, perpetuates an inaccurate understanding of profit as a mere mark-up and obfuscates the source of profit. It begs the question of who really earns the profit.

 

There are two ways to make a profit. Though they differ, both siphon profit from the same source.

 

 First, one can make a profit simply by “buying cheap and selling dear,” as Adam Smith pointed out. If you can sell something for a higher price than you paid for it, irrespective of where it was produced, you make a profit. This profit is usually referred to as commercial profit.

 

The second form of profit, capitalist profit, results from a labor process. Labor power and other inputs are purchased, production takes place and the output is sold for more money than was paid for the inputs. The excess of the selling price over the purchasing price of the inputs is the source of profit. Part of the excess is reinvested in further inputs and a second production process takes place and so on.

 

The excess of the selling price over the purchasing price is the secret of profit. If there were no excess the process would break down as the entrepreneur would eventually run out of funds while his competitors would forge ahead.

 

The crucial point to understand about this process is that the entrepreneur claims the profit because he owns the inputs. However, he did not generate the profit. It was generated in the labor process. Still, as owner of the inputs he is entitled, under law, to claim the profit.

 

The fact that profit is generated in the labor process is evident when one reflects on where economic power is currently moving. The economies of China, India and other Asian nations are given great attention because they are where manufacturing and other production is taking place on an increasing scale. Corporations move their production overseas because a higher rate of profit can be generated overseas due to lower input costs.

 

What does the stock market contribute to all this? It can raise some money for a corporation to purchase additional inputs in what’s called an Initial Public Offering or IPO. This, however, is a small part of corporate finance. The bulk of corporate finance is reinvested profit and other instruments, such as corporate bonds which, in turn, depend on profit.

 

The profit reported for Goldman Sachs and other “banks” in the second quarter was not generated in the stock market. It was generated in the labor process round the world but claimed by such “banks” when some of the profit was used to buy stock or other instruments currently prevalent in financial markets.

 

It is argued that the stock market allocates capital (money) efficiently and that this is its role. Can anyone seriously say that the stock market “allocated capital efficiently” in the years leading up to the economic a collapse of 2008?  Rather, capital is allocated efficiently and will flow to where the highest rate of profit is realized. The feedback mechanism by which this is done is called price.