Debunking the US Unemployment Rate

According to the Bureau of Labor Statistics’ (BLS) most recent report on US employment, the unemployment rate is only 4.3%, down from 5.5% two years ago.

This means only 6.9 million Americans are currently unemployed—the lowest number in years.

In fact, the number of unemployed people has decreased by some 774,000 since January alone.

These numbers look promising—but they’re fake.

That’s not to say that the data itself is fake (the BLS is not pulling numbers out of thin air), but the data is massaged to the point of inadequacy—it doesn’t accurately reflect what’s going on in America’s labor force.

It’s all smoke and mirrors.

In reality, the actual unemployment rate is triple what the BLS reports—probably around 13%.

How Does The Bureau of Labor Statistics Calculate the Official US Unemployment Rate?

To really understand what’s going on with the US unemployment rate, we have to start at the beginning. Feel free to follow along on page four of the linked BLS report (summary table A).

The BLS begins by subtracting from America’s total population (roughly 324 million) the institutional population—that is, people who cannot potentially hold private sector jobs.

This includes people in the US Armed Forces, the penal population, people in mental or other care facilities (old folks homes, for example), and children (under the age of 16).

This gives us the civilian non-institutional population, which is 254,767,000 people—this is the BLS’s estimate of everyone who could potentially work.

The civilian non-institutional population is then divided into two groups:

1. The civilian labor force (159,784,000 people). This includes everyone who is employed or unemployed (has a job, or wants a job).

2. The not in labor force category (94,983,000 people). This is everyone who is of able body and mind who could potentially work, but chooses not to.

The official unemployment rate is simply the percentage of people in the civilian labor force who want jobs, but don’t have them—they’re people looking for work.

According to the BLS, there are some 6,861,000 unemployed people, meaning the official US unemployment rate is 4.3%.

All this seems relatively straightforward, so how could the BLS possibly obfuscate the data?

Why is the Unemployment Rate Wrong?

As is so often the case in politics and statistics, it all comes down to equivocal definitions: people assume a word means one thing (the colloquial definition), but the people calculating the numbers define it differently (they give it a technical, restricted definition).

This confuses the situation, and allows you to lie without lying (technically).

In this case, the big factor is how unemployment is defined.

The BLS only defines someone as unemployed if they: (i) have no job, (ii) can potentially hold a job, (iii) and are actively looking for a job.

There’s the key: to be unemployed, you need to look for work.

If you stop searching for employment, the BLS moves you out of the civilian labor force and instead deems you not in the labor force—even if you stopped looking because there were no jobs.

The BLS makes you disappear: if unemployed people are no longer defined as unemployed, the unemployment rate falls.

It’s obvious. It’s devious. It’s politics.

Here’s a good example of how the BLS fudges the unemployment numbers: pretend you work in a small town that relies on the local factory for employment.

The factory shuts down. Half of the people in town lose their jobs—the unemployment rate goes up.

The people look for work, but soon realize they’re screwed—there are no jobs.

The BLS then removes these people from the labor force, and the unemployment rate magically goes down. Poof.

That’s how you turn 50% unemployment into 0% unemployment.

Unfortunately, this is what’s been happening to America (albeit on a less dramatic scale).

A Brief Look at the BLS Report

Let’s look at the report very briefly, before I get into some of the other employment trends I’ve noticed.

On page four you’ll see a table.

According to said table, between April 2017 and May 2017 the civilian non-institutional population (people who could potentially work) increased by 179,000 people.

All things being equal, for the unemployment rate to remain steady, America would have to add 179,000 new jobs to account for this population growth.

In a broad context, America must create a net 4 million new jobs per year just to account for (immigration-driven) population growth.

Now, during this same period, America’s unemployed population dropped by 195,000 people—sounds good, right? This must mean they got jobs.

But they didn’t (in aggregate).

You’ll notice that the employed population also shrunk by a total of 233,000 people.

So we now know three things: (i)America’s potential working population got bigger, (ii) the number of unemployed people shrunk, and (iii) the number of employed people shrunk.

Where did all these people go?

They went into that catch-all not in labor force category: the number of people “choosing” not to work increased by 608,000 people.

This is why the unemployment rate is fake: falling unemployment numbers are meaningless without the broader context.

The BLS (as filtered through the media) implies more people are working, when that’s demonstrably not true.

Now, in fairness, the BLS does account for some of these people in their broader measures of unemployment (the U-6 unemployment rate), which take into account people working part time for economic reasons (5.2 million), people marginally attached to the labor force (1.5 million), and discouraged workers (355,000).

When added together, this gives us a more accurate picture of the number of truly unemployed people: some 13.6 million people, with 5.2 people working part time (but wanting full time).

That’s better, but the real unemployment rate is higher than that—quite a bit higher.

What Is The Real Unemployment Rate?

Now, you and I both know that the month-to-month data is basically meaningless, because the time horizon is too small—it’s too easy to lose the signal in the noise of short-term volatility.

But the above analysis is indicative of broader trends: for years America’s labor market has been getting hammered by poor economic growth, artificially high population growth due to unsustainable levels of legal and illegal immigration, and excessive offshoring to the developing world.

This is obvious when you look at the US labor force participation rate: it’s currently 62.7%, which is down 5% from its peak in 2000.

Worse still, it’s actually the lowest it’s been since 1977, according to data from the Federal Reserve Bank of St Louis.

The data clearly shows that the percentage of people who are either employed or unemployed has been steadily shrinking—conversely, the number of those not in the labor force has been growing by an equal amount.

What’s obvious is that modern America faces a problem of high, chronic, and hidden unemployment—the question is, how much?

How many Americans are actually unemployed? What is the real unemployment rate?

How Many People are (Falsely) Dropped from the Labor Force?

To tackle this, let’s look at some recent, yet historical numbers from 2015-2016 to put everything in context, since these numbers are more well understood, and we know how they all fit together—less speculation, more information.

In December, 2015, the BLS published an article discussing why so many Americans are dropping out of the labor force.

This data was on top of the U-6 unemployment rate of 16 million people at the time (8.3 million according to the “official” unemployment figure).

In said study, they found that 1.7 million Americans dropped out of the labor force for “other reasons” according to their survey data (that is, that didn’t fit into other categories such as not being able to find a job, or going back to school).

However, in footnote three, the paper acknowledges that 1.5 million of those people actually specified that they selected “other reasons” because there as no work, and that’s why they stopped looking.

These people were tucked away in the not in labor force category, rather than being counted as unemployed—and they did not show up in the discouraged workers index, because they checked off the wrong box.

That’s an extra 1.5 million unemployed Americans that the BLS elides over (and hides in a footnote).

Likewise, the paper discusses the fact that millions of Americans have dropped out of the labor force to go back to school—and when compared to the declining labor force participation rate, never returned.

However, the numbers don’t add up.

For example: in 2014, 31% more teenagers claimed they couldn’t work because of school than in 2004, yet school enrollment only increased by 1% during the same period according to the US Census Bureau.

The same is true for young adults (age 20-24): in 2014, 28% more young adults said they couldn’t work because they were attending post-secondary institutions than in 2004, but post-secondary enrollment only increased by 17% during the same period.

My point?

People (3.35 million of them) are using school as an excuse for not working.

The same goes for disability claims.

In 2014, 31.5% more people said they couldn’t work because of disabilities, but the number of disabled people only increased by 13.6%, according to data from Social Security‘s disability program.

Many people with minor disabilities, who could otherwise work, have opted to drop out of the labor force and collect welfare, rather than face chronic underemployment or unemployment. This works out to 1.96 million people.

All totaled, some 14 million people likely dropped out of the labor force because they could not find work.

Therefore, the real number of unemployed Americans was roughly 22.81 million people in 2016 (remember, the BLS claimed it was 8.3 million), meaning the unemployment rate was 13.3% (not 5.5%).

There’s a massive difference between what we’re told, and what actually is.

The unemployment rate is a sham, pure and simple.

Getting Americans Back to Work

Given that there have been no massive disruptions in the US labor market since 2016, it stands to reason that the real unemployment figures haven’t changed all that much—especially since the labor force participation rate has continued to drop.

This means that the real unemployment rate is around 13.3%—roughly triple the official unemployment rate of 4.3%.

And remember, these figures don’t factor in the number of people who are underemployed, ie. those who can’t get a job in the field they’re qualified for. For example, consider all those people with advanced degrees driving cabs, or working in low-end service jobs.

I knew a woman who had a PhD in molecular chemistry. She worked at a book store as a sales associate for two years, before she eventually decided to have children instead.

Having children was a good decision, but my point is that the distorted labor market isn’t just impacting people with “fluff” degrees in gender studies, as many pundits would have us believe—lots of people with STEM qualifications can’t find work either.

The problem is particularly acute among millennials—there’s a reason they’re being nicknamed “generation screwed“.

How do we get Americans back to work? By fixing America’s economy by paying off our debts, correcting our balance of trade, and eliminating illegal immigration.