Assume we have a small economy with only 100 people. 90 of this people have jobs and 10 are 16 years of age or older and are actively seeking work (the govt. definition of unemployed). The unemployment rate is calculated by taking the number of unemployed (10) and dividing by the Labor Force (the number of unemployed PLUS the number employed = 100 in our case) and multiply by 100. We get an unemployment rate of 10%.
Fast forward 1 month. We still have 90 people working BUT 5 of the unemployed people decide there is not a job for them and they don't believe there will be for a while. They no longer "actively" seek work. They drop out of the Labor Force. The remaining 5 unemployed people stick it out and continue to "actively" seek employment. Our Labor Force (employed + unemployed) has now dropped to 95. Our number of unemployed has dropped to 5. The new unemployment rate is now 5.26% (5/95 X 100)! Sounds great...doesn't it? It is obvious the job situation has not improved and only looks better on paper because some people dropped out of the Labor Force.
This is a reminder that you always have to look "below the fold" to find out what is really going on. See if you can catch "the media" and/or politicians misusing this "good news".
I look forward to when the economy is in quick recovery and lots of jobs are created and we observe the unemployment rate INCREASING.....Say what? That does not make sense...Right??? Stay tuned for a solution to that mystery...HOPEFULLY that will be soon!!!
The reported unemployment rate discussed here is very interesting because it shows how the government can easily skew data reported to the media. The fact that Americans are becoming increasingly apathetic to finding jobs is unfortunate but not altogether somewhat understandable considering the current suppressive economy. It makes more sense for the government to use the lower unemployment statistics and I can see how they might justify it. The government might reason in defense that although the people who are unwilling to find a job, without recognizing their unjust plight, are clumped with the disabled and people unable to work because they have no current economic potential. This, therefore, allows for the government ant its initiatives to look more efficient.
ReplyDeleteAfter learning about unemployment and reading this, it irks me that our government would mislead, give false hope. When will the day come that politicians will care more about Americans than getting reelected, this has got to stop because I fear for our future. What the government doesn't realize, is that Americans may not be economically savvy, but when they hear the news reporter relay the message that unemployment is down and then they don't see the results they are aware that they have been mislead. This deception leads to more Americans feeling apathetic toward our government.
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