How The Government Manipulates Unemployment Statistics
By Daniel R. Amerman, CFA
…Thirty million more people over the age of 16 and one million fewer people being fully employed is a shortfall of 20 million jobs, and this by itself creates Great Depression range unemployment levels. Fundamentally, this is not even remotely consistent with a reported unemployment rate in the 8% range.
The government is attempting "information management" (aka manipulating statistics in a manner specifically intended to deceive) when it comes to how the public perceives this situation. The method used is to split the catastrophe into three boxes: putting 13.5 million jobless people into the first box of official unemployment for press release purposes; segmenting another 11.8 million jobless into the second box that is hidden in the U-6 footnotes, and making another 7.2 million jobless disappear completely by using the third box of changing the workforce participation rates (outside of U-6 since 2000).
Those three boxes add up to 32.5 million jobless, and the 12.5 million jobless over and above the 20 million missing jobs is in the ballpark for what would be "normal" (5.2%) full unemployment for a population of 242 million people aged 16 and above.
Everything adds up, and the big picture of those 20 million missing jobs reconciles with current improving official unemployment statistics when we dive deep into the heart of the workforce participation deception, and discover that the worst of the damage is among those younger than 55. That is the opposite of the cover story for the decline in labor force participation rates to date. But intuitively, this is a good fit with the big picture of 30 million more people in the working age civilian population, and 1 million fewer jobs.
We might expect that those who have good jobs would (mostly) pull those jobs forward in time along with them, but that those who enter the labor force behind their employed elders find that the door is shut, at least when it comes to the most desirable jobs. And it gets a little worse every year, as teens enter their 20s, go through their 20s, and then enter their early 30s, without ever landing the kind of solid and reliable middle class job that can support a family in a house (or pay enough in taxes to support a retiree and pay for their health care).
And when we pierce through the statistical manipulations - that is exactly what is happening.
Employment has been devastated among the young. Which is precisely why there has been such a blatant manipulation of workforce participation statistics among the young in particular. With nothing in those statistical manipulations changing the bigger picture of twenty million missing jobs, and a total that continues to grow annually.
One of the big problems with deceptions is that they can have ripple effects.
These ripple effects can cause particular problems when it comes to our expectations about the future. If what we believe about the past and the present are both wrong - then when we project forward that false information, we get a result that is likely to be disastrously wrong.
This statistical problem is sometimes referred to as GIGO: Garbage In, Garbage Out. Unfortunately, we have a major GIGO problem when it comes to the future economy, tax revenues, deficits, Social Security, Medicare - and investment performance.
When we project forward the train wreck that has been happening with employment and workers younger than 55 - then everything that we think we know about Social Security, Medicare, and federal budget deficits shatters into little pieces. The unending trillion-dollar-plus federal budget deficits that we see discussed in newspapers - are themselves based upon ignoring what has actually been happening with employment since 2000, and instead projecting forward the healthy growth of a healthy economy, that in truth hasn't been healthy for a long time. Without that growth - taxes are much less than projected, deficits get much larger, and the crises with Social Security and Medicare get much worse, much faster.
The heart of the problem is that there are two different kinds of reductions in workforce participation rates - and they are on collision courses. One kind is the subject of this article, which is the statistical deception that is being committed to cover up the full extent of the still growing unemployment crisis among those aged 55 and younger.
The second kind of falling workforce participation is the fundamentals of demographics and what will become a dominant reality for the economy. The Boomers are aging, and by 2027, population projections are that there will only be two people in the 16-64 labor force for each person aged 65 or over. Leaving aside children, and going a level deeper than the facade of money-based projections, the true fundamental factor that governs everything is the ratio of two people producing resources for each one hopeful retiree consuming resources. (Over the long-term and for societies as a whole, money is only an easily manipulated symbol; goods and services are the reality that determine actual standards of living.)
Even with a robustly healthy economy and full employment - let me suggest that it has always been a very dicey proposition in terms of those two workers paying for their own family, the military and government infrastructure and other transfer payments, and then supporting one older person between them, while buying out massive sums of Boomer retirement account and pension investments at the highest prices in history with the money they have left over every year.
Indeed, in my opinion this has never been possible, and as I have been writing about for many years now, much of conventional retirement planning is based on a fairy tale which assumes fifty million Boomer investors can compound paper wealth together at a rate much faster than the growth in the real economy - and then somehow simultaneously cash this paper wealth out into real resources that don't exist.
But when we have a real economy that isn't experiencing healthy growth but is instead staggering, with imploding employment levels among younger workers - then there are two major implications which turn a building disaster among the young into a future disaster for the old. The first implication is that the gap between what has been promised and what is available must grow. The less real wealth that is produced by the actively working young, then the less wealth there is available for the old after retirement, whether we are talking about public transfers or private investments.
Politicians and financial firms can make all the soothing projections they want, but the fundamentals are that fewer jobs for the young mean greater eventual impoverishment for the old, and there is no getting around that.
The second implication is that the demographic financial crisis is brought forward in time. An average of four million Boomers will be reaching traditional retirement age each year. Meanwhile the job base among the young has been shrinking. The longer those two forces are occurring simultaneously, the faster the gap between expectations and reality grows, and the sooner the arrival of a crisis which could dwarf what we have seen to date.
This situation is a powerful incentive for older Americans to ramp up their savings and investment rate. Ironically however, the worst of the damage from employment statistics GIGO is not in the public sector, but can be found in the deception of private investors. Most of the value of the stock market is based upon expectations of future growth, which are being enabled by garbage statistics about what has actually been happening in the past and present. Remove the growth - and most of the current value of the markets goes with it, for when jobs implode, so do stock markets.
This can be seen very clearly by what happened to stocks the last time we had a major (albeit lesser) jobs crisis in this country. As covered in my article, "Deadly Dow 36,000 & The Secret History Of A 70% Market Loss", there are ample historical reasons to believe that the jobs crisis may create a stock market illusion, with apparent rising stock market indexes that mask investment values plunging in inflation-adjusted terms.
This is a national emergency, and what is needed more than anything else is full honesty about what is happening, and a nation pulling together to change what can be changed.
[--This and much more, including charts, is at:]
http://danielamerman.com/articles/2012/WorkC.html
By Daniel R. Amerman, CFA
…Thirty million more people over the age of 16 and one million fewer people being fully employed is a shortfall of 20 million jobs, and this by itself creates Great Depression range unemployment levels. Fundamentally, this is not even remotely consistent with a reported unemployment rate in the 8% range.
The government is attempting "information management" (aka manipulating statistics in a manner specifically intended to deceive) when it comes to how the public perceives this situation. The method used is to split the catastrophe into three boxes: putting 13.5 million jobless people into the first box of official unemployment for press release purposes; segmenting another 11.8 million jobless into the second box that is hidden in the U-6 footnotes, and making another 7.2 million jobless disappear completely by using the third box of changing the workforce participation rates (outside of U-6 since 2000).
Those three boxes add up to 32.5 million jobless, and the 12.5 million jobless over and above the 20 million missing jobs is in the ballpark for what would be "normal" (5.2%) full unemployment for a population of 242 million people aged 16 and above.
Everything adds up, and the big picture of those 20 million missing jobs reconciles with current improving official unemployment statistics when we dive deep into the heart of the workforce participation deception, and discover that the worst of the damage is among those younger than 55. That is the opposite of the cover story for the decline in labor force participation rates to date. But intuitively, this is a good fit with the big picture of 30 million more people in the working age civilian population, and 1 million fewer jobs.
We might expect that those who have good jobs would (mostly) pull those jobs forward in time along with them, but that those who enter the labor force behind their employed elders find that the door is shut, at least when it comes to the most desirable jobs. And it gets a little worse every year, as teens enter their 20s, go through their 20s, and then enter their early 30s, without ever landing the kind of solid and reliable middle class job that can support a family in a house (or pay enough in taxes to support a retiree and pay for their health care).
And when we pierce through the statistical manipulations - that is exactly what is happening.
Employment has been devastated among the young. Which is precisely why there has been such a blatant manipulation of workforce participation statistics among the young in particular. With nothing in those statistical manipulations changing the bigger picture of twenty million missing jobs, and a total that continues to grow annually.
Deceptions & The Problem With The Future
One of the big problems with deceptions is that they can have ripple effects.
These ripple effects can cause particular problems when it comes to our expectations about the future. If what we believe about the past and the present are both wrong - then when we project forward that false information, we get a result that is likely to be disastrously wrong.
This statistical problem is sometimes referred to as GIGO: Garbage In, Garbage Out. Unfortunately, we have a major GIGO problem when it comes to the future economy, tax revenues, deficits, Social Security, Medicare - and investment performance.
When we project forward the train wreck that has been happening with employment and workers younger than 55 - then everything that we think we know about Social Security, Medicare, and federal budget deficits shatters into little pieces. The unending trillion-dollar-plus federal budget deficits that we see discussed in newspapers - are themselves based upon ignoring what has actually been happening with employment since 2000, and instead projecting forward the healthy growth of a healthy economy, that in truth hasn't been healthy for a long time. Without that growth - taxes are much less than projected, deficits get much larger, and the crises with Social Security and Medicare get much worse, much faster.
The heart of the problem is that there are two different kinds of reductions in workforce participation rates - and they are on collision courses. One kind is the subject of this article, which is the statistical deception that is being committed to cover up the full extent of the still growing unemployment crisis among those aged 55 and younger.
The second kind of falling workforce participation is the fundamentals of demographics and what will become a dominant reality for the economy. The Boomers are aging, and by 2027, population projections are that there will only be two people in the 16-64 labor force for each person aged 65 or over. Leaving aside children, and going a level deeper than the facade of money-based projections, the true fundamental factor that governs everything is the ratio of two people producing resources for each one hopeful retiree consuming resources. (Over the long-term and for societies as a whole, money is only an easily manipulated symbol; goods and services are the reality that determine actual standards of living.)
Even with a robustly healthy economy and full employment - let me suggest that it has always been a very dicey proposition in terms of those two workers paying for their own family, the military and government infrastructure and other transfer payments, and then supporting one older person between them, while buying out massive sums of Boomer retirement account and pension investments at the highest prices in history with the money they have left over every year.
Indeed, in my opinion this has never been possible, and as I have been writing about for many years now, much of conventional retirement planning is based on a fairy tale which assumes fifty million Boomer investors can compound paper wealth together at a rate much faster than the growth in the real economy - and then somehow simultaneously cash this paper wealth out into real resources that don't exist.
But when we have a real economy that isn't experiencing healthy growth but is instead staggering, with imploding employment levels among younger workers - then there are two major implications which turn a building disaster among the young into a future disaster for the old. The first implication is that the gap between what has been promised and what is available must grow. The less real wealth that is produced by the actively working young, then the less wealth there is available for the old after retirement, whether we are talking about public transfers or private investments.
Politicians and financial firms can make all the soothing projections they want, but the fundamentals are that fewer jobs for the young mean greater eventual impoverishment for the old, and there is no getting around that.
The second implication is that the demographic financial crisis is brought forward in time. An average of four million Boomers will be reaching traditional retirement age each year. Meanwhile the job base among the young has been shrinking. The longer those two forces are occurring simultaneously, the faster the gap between expectations and reality grows, and the sooner the arrival of a crisis which could dwarf what we have seen to date.
This situation is a powerful incentive for older Americans to ramp up their savings and investment rate. Ironically however, the worst of the damage from employment statistics GIGO is not in the public sector, but can be found in the deception of private investors. Most of the value of the stock market is based upon expectations of future growth, which are being enabled by garbage statistics about what has actually been happening in the past and present. Remove the growth - and most of the current value of the markets goes with it, for when jobs implode, so do stock markets.
This can be seen very clearly by what happened to stocks the last time we had a major (albeit lesser) jobs crisis in this country. As covered in my article, "Deadly Dow 36,000 & The Secret History Of A 70% Market Loss", there are ample historical reasons to believe that the jobs crisis may create a stock market illusion, with apparent rising stock market indexes that mask investment values plunging in inflation-adjusted terms.
This is a national emergency, and what is needed more than anything else is full honesty about what is happening, and a nation pulling together to change what can be changed.
[--This and much more, including charts, is at:]
http://danielamerman.com/articles/2012/WorkC.html
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