Jobs Report in Plain English

By Jerry Bowyer
Monday, November 5, 2007

The economy added 166,000 jobs last month. Is that a lot, or a little? If the economy added jobs, why did the unemployment rate stay the same – shouldn’t it have gone down? Are these new employees mostly burger flippers? Is it true that when people lose their unemployment benefits, they’re no longer counted as unemployed? Have a lot of people gotten discouraged and given up looking for work? What kind of people are most likely to find work?

I do a lot of interviews on radio call-in shows. The most common phone call goes something like this: “Why isn’t there something out there that explains what’s going on in the economy in clear English?” To the many talk radio callers, cameramen who’ve helped me do satellite hook-ups with TV shows, and waiters who’ve approached me to follow-up on one of my speeches, I say: This column’s for you.

There are 146 million of us working here in America. That number has never been higher. Compared to that there are only 7 million people unemployed. Rough 79 million people are not in the labor force at all. This includes people who are underage, retired, disabled, ne’er do well scions of great fortunes, and people who have simply given up looking for work. The last group is officially referred to as ‘discouraged workers’. At 320,000 people, it is an infinitesimally small proportion of the total labor pool – less than third of a percent. Contrary to widespread assertions in the blogosphere (and the editorial page of the New York Times), it has not been rising. In fact, over the past 4 years, people have been rushing into the job market, not out of it.

Economists generally consider any unemployment rate under 5% to be ‘full employment’, which means that even when things are great, there’s still a delay between the time people leave one job and take another. The current unemployment rate is 4.7%. This rate is very low, but not as low as during the tech boom of the late 1990s. However, the jobs of that era were far more likely to be paid for by investors who were waiting for a company to show its first profit, than now, where the jobs growth is associated with high profits.

The reason that the unemployment rate sometimes stays the same (or even goes down) even when jobs increase, is that the two numbers are based on different surveys. The 166,000 jobs number is based on something called ‘the establishment survey’, which polls existing companies to measure their payroll growth. The unemployment rate is based on something called ‘the household survey’ which (not surprisingly) polls individual households. The household survey counts self-employed people; the establishment survey does not. Real estate agents, for instance, along with many small business owners, are not generally counted by the establishment survey. The unemployment rate counts people who are not working, but are looking for work, whether they’re on unemployment compensation or not. Not many people are unemployed long enough to lose benefits anyway. The largest group of unemployed is the group that’s out of work for 5 weeks or less. In fact over 2/3s of these folks are unemployed for less than 4 months.

The average worker is making $17.58 per hour, which is up by almost 4% from a year ago, so we’re not exactly a nation of burger boys, but the growth in wages could be a little higher. If you want to have a life filled with gainful employment, pretty much the best thing you can do is not drop out of school. As the chart above shows, as of last month, high school drop-outs had an unemployment rate of 7.3%, those who finish college, on the other hand, have an unemployment rate of 2.1%. Even for those who can’t afford college, high school is free, and community college is extremely affordable. Do both and you cut your chance of unemployment in half.

Any honest look at October’s jobs report offers no real support to people who claim that the US doesn’t offer an open opportunity to people who are willing to make an effort.