BY MATTHEW ZABKA
Published February 1, 2012
Election years always feature numbers that are supposed to show the accomplishments or errors of a particular politician. On Jan. 6, the Bureau of Labor and Statistics released its latest unemployment data, and politicians have been quick to present these data as beneficial to their supported policies. Both President Barack Obama and Republican Gov. Rick Snyder have recently cited dropping unemployment rates as a sign that their economic policies are working.
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While it may seem that a drop in the unemployment rate is a positive sign for the economy, this isn’t always the case. Some politicians attempt to exploit such misunderstandings of unemployment numbers, and it's therefore important that one understands what unemployment data says so one can accurately judge politicians’ claims.
All else constant, it's certainly true that if enough jobs are created, the unemployment rate will drop. Economists say normal population growth requires the economy to add between 80,000 and 100,000 jobs per month to maintain a steady unemployment rate. If the economy adds significantly more than 100,000 jobs in a month, the unemployment rate will drop, but if fewer than 80,000 jobs are added in a month, the unemployment rate will rise.
With this information, a politician’s claim that his policies added jobs, but not enough to keep up with population growth, should not be sufficient to impress voters.
Obama’s campaign released a graph on Facebook on Jan. 3 that shows the number of private sector jobs added per month. The campaign claims the graph shows Obama’s strong record of job creation and specifically touts 21 months of growth. Ignore for a moment that the graph examines only a cross section of the economy; including the entire economy would have yielded a less flattering picture. The graph still shows that in several of the 21 months, fewer jobs were created than necessary to keep up with population growth. This is no reason to brag, but a general misunderstanding of economic data allows the Obama campaign the opportunity to present the graph as positive material.
To avoid falling for a politician’s slight of hand, understanding the definitions used in any set of data is key. The BLS defines the labor force as anyone who is at least 16 years of age and is either working or actively seeking work. The unemployment rate is then defined as the percentage of the labor force that is unemployed.
By definition, a drop in the unemployment rate only means that a smaller percentage of the work force is unemployed. Should a large number of unemployed people stop looking for work and, by definition, leave the workforce, the unemployment rate will also drop. In this situation, the unemployment rate looks better, even though the country’s economic situation has worsened.
This unfortunately appears to be the case for much of the post-recession economy. Even though few jobs were created during the poorly named “recovery summer” in 2010, the United States’s unemployment rate was mostly constant. This was because discouraged unemployed people left the labor force.
Michigan’s situation is particularly noteworthy in this regard and gives another example of a politician using numbers that should impress no one. Snyder said Michigan’s unemployment rate has dropped below 10 percent for the first time since he took office in his State of the State address last month. But according to the BLS, the number of jobs in Michigan has remained almost unchanged. Rather than new jobs lowering the unemployment rate, frustrated unemployed workers’ decisions to stop looking for work have reduced Michigan’s work force and thus driven down Michigan’s unemployment rate.
This column only contains a brief introduction to understanding unemployment rates. Other factors, like seasonal variation, can also affect unemployment data. While understanding the definitions used is important, nobody can be an expert on everything, and with so many politicians trying to misrepresent data for their advantage, how can one accurately judge the state of the economy?
The answer is to trust experts. Voters should not give politicians a free pass for misrepresenting economic data. Listening to economists, such as the ones regularly consulted in The Wall Street Journal and The New York Times, can serve as an important fact-check against politicians’ economic claims.