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| US unemployment: the definitive explainer | |
| (1 day later) | |
| Yay! It's jobs day! On a Tuesday! | Yay! It's jobs day! On a Tuesday! |
| Yes! But, sorry, there's no reason to be so excited. Pace yourself. | Yes! But, sorry, there's no reason to be so excited. Pace yourself. |
| Why not? We've gone weeks without a jobs report because of the government shutdown, right? Now we know, and it's on a Tuesday instead of a Friday. It's like a special holiday, except instead of cupcakes, we get economic statistics. That is so sad. Anyway, the reason to temper your excitement is that we had bad news. This report says there were only 148,000 jobs created in September. | Why not? We've gone weeks without a jobs report because of the government shutdown, right? Now we know, and it's on a Tuesday instead of a Friday. It's like a special holiday, except instead of cupcakes, we get economic statistics. That is so sad. Anyway, the reason to temper your excitement is that we had bad news. This report says there were only 148,000 jobs created in September. |
| That's way below what economists expected, which was more like 180,000 jobs. It will also probably be revised twice later on, so we won't really know the actual number for another two months. Oh, and the margin of error is 100,000 jobs. | That's way below what economists expected, which was more like 180,000 jobs. It will also probably be revised twice later on, so we won't really know the actual number for another two months. Oh, and the margin of error is 100,000 jobs. |
| The margin of error is 100,000 jobs! That is crazypants. So it's possible we added only 48,000 jobs? | The margin of error is 100,000 jobs! That is crazypants. So it's possible we added only 48,000 jobs? |
| Yes. It would be possible – though not likely – that the difference is that extreme. But look at it this way: remember in July when everyone was pleased that we added 162,000 jobs? | Yes. It would be possible – though not likely – that the difference is that extreme. But look at it this way: remember in July when everyone was pleased that we added 162,000 jobs? |
| Of course I remember! How could I forget? | Of course I remember! How could I forget? |
| Really? | Really? |
| Let's go with it, okay? | Let's go with it, okay? |
| Well, after the jobs numbers were revised in August, it turned out that we actually did not add 162,000 jobs in July. We added only 104,000 jobs. That's 58,000 jobs we thought we added but didn't. | Well, after the jobs numbers were revised in August, it turned out that we actually did not add 162,000 jobs in July. We added only 104,000 jobs. That's 58,000 jobs we thought we added but didn't. |
| Wow, that's depressing. | Wow, that's depressing. |
| Sorry. But you have to know. These jobs numbers aren't written on stone tablets. | Sorry. But you have to know. These jobs numbers aren't written on stone tablets. |
| Wait, I just realized something. I'm not entirely sure what the "jobs numbers" really are. I mean, I know there are articles about it, and then people go on TV and look really happy or really sad, but I'm not sure what they're actually telling me. | Wait, I just realized something. I'm not entirely sure what the "jobs numbers" really are. I mean, I know there are articles about it, and then people go on TV and look really happy or really sad, but I'm not sure what they're actually telling me. |
| Glad you asked. On the first Friday of every month, the BLS releases the numbers and economists and pundits examine them to see how many people are unemployed, which is a kind of proxy for how well the overall economy is doing. | Glad you asked. On the first Friday of every month, the BLS releases the numbers and economists and pundits examine them to see how many people are unemployed, which is a kind of proxy for how well the overall economy is doing. |
| I remember reading about other measures of unemployment, though. I think one was called ADP? What's that, and how is it different? | I remember reading about other measures of unemployment, though. I think one was called ADP? What's that, and how is it different? |
| Yes, that's the ADP payroll number. We get those from a private company named ADP, which processes payroll information for companies. It provides monthly estimates of employment. Lately it has started working with Moody's to make its numbers are more exact. ADP gets to measure 24 million people by looking at data from its clients. Sometimes the ADP numbers are a good predictor of the official government report, and sometimes not. | Yes, that's the ADP payroll number. We get those from a private company named ADP, which processes payroll information for companies. It provides monthly estimates of employment. Lately it has started working with Moody's to make its numbers are more exact. ADP gets to measure 24 million people by looking at data from its clients. Sometimes the ADP numbers are a good predictor of the official government report, and sometimes not. |
| What's the point of having a private company try to track what the government is doing anyway? | What's the point of having a private company try to track what the government is doing anyway? |
| Well, no economic indicator is perfect. The more people we have out there measuring, the more we can compare and contrast. | Well, no economic indicator is perfect. The more people we have out there measuring, the more we can compare and contrast. |
| Hmm. So you said knowing how many people are unemployed tells us how the whole economy is doing? | Hmm. So you said knowing how many people are unemployed tells us how the whole economy is doing? |
| Well, not exactly. The jobs report also tells us which industries are doing well – retail and hospitality around the holidays, manufacturing on occasion, computer programming. | Well, not exactly. The jobs report also tells us which industries are doing well – retail and hospitality around the holidays, manufacturing on occasion, computer programming. |
| The unemployment report tells us a lot of other things, like how many people are working, which is called "labor force participation." Labor force participation tells us the very crucial fact of how many people are dropping out of the labor force; for instance, right now it tells us about 63.5% of America is working, which is the lowest point in 35 years, since the recession of the early 1980s. So, for instance, we know that the actual unemployment rate has been dropping, which looks like good news. But it's only dropping because fewer people are looking for work. That's what labor force participation helps us figure out. | The unemployment report tells us a lot of other things, like how many people are working, which is called "labor force participation." Labor force participation tells us the very crucial fact of how many people are dropping out of the labor force; for instance, right now it tells us about 63.5% of America is working, which is the lowest point in 35 years, since the recession of the early 1980s. So, for instance, we know that the actual unemployment rate has been dropping, which looks like good news. But it's only dropping because fewer people are looking for work. That's what labor force participation helps us figure out. |
| Economists also consider other major economic indicators, like housing numbers and inflation, to get the full picture. The unemployment report is just one piece, although it's a big one. | Economists also consider other major economic indicators, like housing numbers and inflation, to get the full picture. The unemployment report is just one piece, although it's a big one. |
| That's a lot of pressure on one monthly report. How does the BLS come up with the jobs numbers? ADP can just look at spreadsheets from its clients. Does the government actually go around and knock on doors or ask every business in America who it's hiring? | That's a lot of pressure on one monthly report. How does the BLS come up with the jobs numbers? ADP can just look at spreadsheets from its clients. Does the government actually go around and knock on doors or ask every business in America who it's hiring? |
| This is Uncle Sam, brother. It doesn't have that kind of money or manpower. Instead, every month, the Bureau of Labor Statistics measures – or tries to measure – how many people are unemployed in the US. It's a survey. They interview 60,000 households, which is about 110,000 people. They make sure that those people are distributed all over the country to get a diverse set of geographic regions and industries. They ask those people questions like whether they're working, or looking for work, and how long they've been out of work if they're unemployed. | This is Uncle Sam, brother. It doesn't have that kind of money or manpower. Instead, every month, the Bureau of Labor Statistics measures – or tries to measure – how many people are unemployed in the US. It's a survey. They interview 60,000 households, which is about 110,000 people. They make sure that those people are distributed all over the country to get a diverse set of geographic regions and industries. They ask those people questions like whether they're working, or looking for work, and how long they've been out of work if they're unemployed. |
| Wait, wait, wait. Only 110,000 people are surveyed to get the unemployment statistics for a nation of over 300 million? Is this like how only a few people have Nielsen set-top boxes and they all watch terrible network TV shows like Two and a Half Men and so network executives think that's what we all want, and that's why the rest of us have to blink at Netflix on our laptops to find the smallest scrap of decent programming? | Wait, wait, wait. Only 110,000 people are surveyed to get the unemployment statistics for a nation of over 300 million? Is this like how only a few people have Nielsen set-top boxes and they all watch terrible network TV shows like Two and a Half Men and so network executives think that's what we all want, and that's why the rest of us have to blink at Netflix on our laptops to find the smallest scrap of decent programming? |
| If your point is that small sample sizes are unreliable, yes. Still, the BLS interviews a lot more people than you see in, say, those vaunted political polls that start with "Six out of 10 Americans believe ... " And the BLS rotates the families every so often, so that no family is interviewed four times in a row. You can read more about how they do things here. | If your point is that small sample sizes are unreliable, yes. Still, the BLS interviews a lot more people than you see in, say, those vaunted political polls that start with "Six out of 10 Americans believe ... " And the BLS rotates the families every so often, so that no family is interviewed four times in a row. You can read more about how they do things here. |
| Then the BLS crunches those numbers. It wants to find a specific subset of the population: those who are not working, but are able to work and are searching for work. Those who fit those criteria are counted as "unemployed." That number is kind of unreliable too. Anyone who doesn't have a job but is not searching for work doesn't make it into the official ranks of the unemployed, and don't influence the unemployment rate. They're counted as "discouraged workers" in some cases. | Then the BLS crunches those numbers. It wants to find a specific subset of the population: those who are not working, but are able to work and are searching for work. Those who fit those criteria are counted as "unemployed." That number is kind of unreliable too. Anyone who doesn't have a job but is not searching for work doesn't make it into the official ranks of the unemployed, and don't influence the unemployment rate. They're counted as "discouraged workers" in some cases. |
| That makes no sense. We're coming up with an unemployment rate without actually counting people who are totally unemployed? | That makes no sense. We're coming up with an unemployment rate without actually counting people who are totally unemployed? |
| It's a big flaw in the system. The Economic Policy Institute has tried to get a better picture of how many people are really unemployed by measuring what they call "missing workers." | It's a big flaw in the system. The Economic Policy Institute has tried to get a better picture of how many people are really unemployed by measuring what they call "missing workers." |
| This sounds all very ... guessy. Why is the government even trying? Whose bright idea was that? | This sounds all very ... guessy. Why is the government even trying? Whose bright idea was that? |
| It's a fun history lesson, actually. Naturally, the greatest interest in measuring unemployment has been when there's a lot of it. The unemployment report as we know it was born during the Great Depression. In the first unemployment report in 1937, the survey was given by mailmen, since they were following predictable routes of randomly distributed Americans. They visited some of the people in the "voluntary registry of the unemployed" and asked if they had worked the previous week. The results were harsh: the unemployment rate in the first real measure, in 1938, was 20%. Another 10% were underemployed. | It's a fun history lesson, actually. Naturally, the greatest interest in measuring unemployment has been when there's a lot of it. The unemployment report as we know it was born during the Great Depression. In the first unemployment report in 1937, the survey was given by mailmen, since they were following predictable routes of randomly distributed Americans. They visited some of the people in the "voluntary registry of the unemployed" and asked if they had worked the previous week. The results were harsh: the unemployment rate in the first real measure, in 1938, was 20%. Another 10% were underemployed. |
| Really? We didn't start measuring unemployment until 1937? | Really? We didn't start measuring unemployment until 1937? |
| The baby-step origins go back even further. The unemployment statistics first grew out of the census. In 1880, as part of the census, the government first asked people whether they were working or not. Then, in the 1920s, as a recession started to hit the US, President Herbert Hoover wanted to get a better sense of who was employed and who was not, and the first unemployment surveys were born. They didn't really take off, though, until FDR was president. His Works Progress Administration took over measuring unemployment. The WPA hit two birds with one stone: first, by trying to find out how many people were unemployed, it could measure how many people had to be put back to work. As a bonus, crunching the unemployment rate also provided work for a lot of statisticians. Berkeley economics professor David Card has a fascinating account of the history in this report. | The baby-step origins go back even further. The unemployment statistics first grew out of the census. In 1880, as part of the census, the government first asked people whether they were working or not. Then, in the 1920s, as a recession started to hit the US, President Herbert Hoover wanted to get a better sense of who was employed and who was not, and the first unemployment surveys were born. They didn't really take off, though, until FDR was president. His Works Progress Administration took over measuring unemployment. The WPA hit two birds with one stone: first, by trying to find out how many people were unemployed, it could measure how many people had to be put back to work. As a bonus, crunching the unemployment rate also provided work for a lot of statisticians. Berkeley economics professor David Card has a fascinating account of the history in this report. |
| That's incredibly nerdy. You know what else is nerdy? This thing I've seen on Twitter called #NFPguesses. It's just a bunch of numbers and percentages. What is that? | That's incredibly nerdy. You know what else is nerdy? This thing I've seen on Twitter called #NFPguesses. It's just a bunch of numbers and percentages. What is that? |
| That's kind of a game played by economists, bloggers and pundits. NFP stands for "non-farm payrolls" and the tweets are guesses about what the unemployment numbers will be. For instance, "180k, 7.3%" means the tweeter is guessing that the economy added 180,000 jobs and that the unemployment rate is 7.3%. | That's kind of a game played by economists, bloggers and pundits. NFP stands for "non-farm payrolls" and the tweets are guesses about what the unemployment numbers will be. For instance, "180k, 7.3%" means the tweeter is guessing that the economy added 180,000 jobs and that the unemployment rate is 7.3%. |
| Pffft. You call that a game? Does it even involve shots of liquor? I don't think so. | Pffft. You call that a game? Does it even involve shots of liquor? I don't think so. |
| Will it make you a hit at dinner parties? Probably not. But now you know what people are talking about. | Will it make you a hit at dinner parties? Probably not. But now you know what people are talking about. |
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