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Some Economic Insight For Donald Trump From an Individual Not Named Steve…

August 5th, 2016 · 4 Comments
Econ 101 · Economic History · Macroeconomics

Dear Mr. Trump,

You didn’t approach me to be part of your econsquad, but that’s fine- while I do have more of an economics background than 12/13ths of your team, my name isn’t Steve, so I’m not sure I’d be a good fit. Hypothetically, I’d like to think I’d take you up on your offer were it to be extended, since my commitment to education is fairly universal, and the over/under bets on how long it would take me to get fired would be pretty entertaining. Anyway, you know how you get those security briefings so that you can prepare before you actually get the job? Turns out I did a bit of a similar thing in anticipation of getting your call. I figured it shouldn’t go to waste, so here you go.

As is true with almost all first Fridays of the month, the Bureau of Labor Statistics released its “jobs report” today- i.e. its numbers for July employment and unemployment. The bare minimum information you need to know is that the economy added 255,000 jobs and the unemployment rate remained at 4.9%. The general consensus among economists is that this is a very good report. Now, I know you don’t like this number, so allow me to explain a bit and, perhaps more helpfully, provide you with a few alternatives.

First, how could jobs get added and the unemployment rate not change? I was hoping this was no longer an esoteric issue, but to refresh- the unemployment rate is the percentage of unemployed people in relation to the universe of people who either have or are actively looking for a job- i.e. the labor force. People can enter or exit the labor force depending on their personal circumstances- for example, people who quit their jobs to volunteer for your campaign have exited the labor force for the time being. An unemployment rate of 4.9% means that 95.1% of people who are looking for jobs have them, so if 95.1% of the new people in the labor force found jobs, the unemployment rate wouldn’t budge.

From what I’ve read, your contention is that this is not the “real” unemployment rate, which is actually a fair point to some degree. What is much less fair, however, is the assertion that the BLS is somehow hiding this from the American people. So check this out:

If by “hiding” you really mean “placing at the bottom of a boring wall of text,” then yeah, I can’t argue with that. In any case, there is a wealth of data there that is the stuff that numbers geeks like me live for. In addition, I’d like to direct your attention to Table A-15, since this is, in a way, where your “real” unemployment rates are hiding:

Worried about the people who give up looking for work because they think things are hopeless? They’re called discouraged workers, and they are included in U-4: 5.2%

Also worried about people who aren’t actively looking for work but would take a job if it presented itself? They’re called marginally attached workers, and they are included in U-5: 6.0%

Also worried about people who are working part time because they can’t find a full-time job? They’re included in U-6: 9.7%

Update: Here’s even some historical numbers for you in handy Twitter form- I hope you don’t find it presumptuous that I inferred Twitter to be your preferred communication method.

You may have noticed that I reported the “seasonally adjusted” numbers here- like the BLS, I am not trying to pull anything shady, and you can see an explanation of why seasonally-adjusted numbers are better for looking at trends over time here:

Now, even U-6 is pretty far from the 40-something percent unemployment you’ve mentioned a few times, so I spent some time reverse engineering what it is you might be referring to. This is what I came up with, and please do let me know if I’m off base…for this, let’s take a look at Table A:

Here, we can see that the employment-population ratio- i.e. the percentage of working-age adults capable of civilian employment (with a few very minor caveats)- is 59.7%, so if you consider literally every working-age adult who doesn’t have a job as unemployed, you do in fact get somewhere in the neighborhood of 40% as an unemployment rate. While I do acknowledge that economists view (mainly non-population-demographic-based) decreases in the employment-population ratio as problematic (mainly on the grounds that fewer workers means less stuff produced, but also social Security funding and such), I would strongly advise against making it a policy objective to get this figure anywhere near 100%. Why? Go tell Melania that she needs to go get a job for the sake of unemployment numbers and report back how that works out for you. 🙂

(Update) I do realize that this information puts you in a difficult spot with your supporters- I mean, we can’t always choose our audiences, except in this case where that is exactly what you are doing. It also likely puts you in an awkward place with Melania, since she probably feels less special after you implied that some 35 percent of the population is just like her, and I doubt that “they are, but only in a non-discouraged non-marginally-attached not in the labor force sense” goes over well in a romantic context. Please remind her that this is not the case- much of that 35-ish percent is comprised of full-time students (advanced high school and college), retirees, the disabled, people for whom childcare would cost more than their income (yikes) and so on. (You could have your Steves dig into the Census data and find out how many of each type of these people there are- I’m nice, but I’m not going to do all of their homework for them.) Here, you could even print out the Wikipedia page for “civilian noninstitutional population” for her and put a solid gold bow around it or whatever it is you do to stay on her good side. In related news, my 87-year-old grandfather would like you let you know that he will punch you in the face if you don’t stop referring to him as “unemployed.”

In case you’re curious (you’re probably not, let’s be honest), conspiracy theories regarding the unemployment rate have been around for a while (no really, that article is great), and there have been significant shifts over time in the nature and direction of the theories. Can you imagine that in the 1960’s people believed that the official unemployment number was INFLATED (by erroneously adding in discouraged workers, no less, which seems to be what you advocate) as part of a Communist plot. So I guess what I’m suggesting is that you’re a Communist. Just kidding, but think through the logic for a second- higher unemployment rates are usually used to make arguments for more social assistance, which is the opposite of what your adopted party stands for. Is that really where you want to go with this? Especially when people seem to be taking your statements literally in a way that is not particularly productive:

Now, go back to your private-sector Steves, but keep this unexpectedly insightful observation from an actual economist in mind…


Tags: Econ 101 · Economic History · Macroeconomics

4 responses so far ↓

  • 1 Chris // Aug 7, 2016 at 12:19 pm

    The one most inclusive official statistic accounts for 9.7% of the population without jobs, but the overall number of adults without jobs is 40% — cracking a joke about Melania doesn’t really explain 3/4 of that 40%. Is 30% of the US population composed of happy housewives?

    To try to refute Trump, you have to really dig into the difference between the 40.3% unemployment/population ratio and the 9.7% U6 number. There’s a LOT of wiggle room there that could be hiding a LOT of reality. What is the methodology for identifying discouraged workers, and how else does the BLS explain the remaining 30% of the unemployed population, exactly?

    It is not a self-evidently stupid assertion that everyone without a paying job is technically unemployed — is it really true that 3/4 of them truly do not want a job?

    I would also raise questions about why Trump’s 40% unemployment “feels” so much more truthful than the official 5% number. I suspect it feels more correct because 1) there are large areas of concentrated unemployment, so if you live in one then you might know a lot of unemployed people, and 2) confirmation bias or some other cognitive distortion.

  • 2 econgirl // Aug 7, 2016 at 2:48 pm

    Here’s some info on U-6 by state for those who are interested. There’s some variation, but not as much as I think I would have guessed.

  • 3 econgirl // Aug 7, 2016 at 4:01 pm

    @Chris: I added a paragraph above just for you! (well, not *just*, but you get the idea)

  • 4 John Foelster // Aug 8, 2016 at 3:00 am

    Well, I didn’t think I was going to have incrementally less respect for Spike Milligan and Peter Sellers’ fictional coward and bar Major Denis Bloodnok after reading this blog post going in, but I guess that imitation by the stupid (and bad spellers) is the inevitable fate of genius.

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