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Tuesday, February 03, 2015 1:41 PM

Gallup CEO Calls 5.6% Unemployment Rate "The Big Lie": What's a Realistic Unemployment Rate?

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On Linked-In, Gallup CEO, Jim Clifton proclaims 5.6% unemployment is "The Big Lie".

And it is. I have talked about this for years, but perhaps it would be interesting to hear the same thing from a CEO of a big agency. I picked this story up from ZeroHedge. Emphasis in italics is mine.

Clifton first calls the unemployment rate "extremely misleading" but later on calls it "The Big Lie", and that is the title of his Linked-In article as well.

From Gallup CEO, Jim Clifton ....

Here’s something that many Americans -- including some of the smartest and most educated among us -- don’t know: The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading.

Right now, we’re hearing much celebrating from the media, the White House and Wall Street about how unemployment is “down” to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.

None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job -- if you are so hopelessly out of work that you’ve stopped looking over the past four weeks -- the Department of Labor doesn’t count you as unemployed. That’s right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news -- currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren’t throwing parties to toast “falling” unemployment.

There’s another reason why the official rate is misleading. Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 -- maybe someone pays you to mow their lawn -- you’re not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.

Yet another figure of importance that doesn’t get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find -- in other words, you are severely underemployed -- the government doesn’t count you in the 5.6%. Few Americans know this.

There’s no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.

Gallup defines a good job as 30+ hours per week for an organization that provides a regular paycheck. Right now, the U.S. is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America’s middle class.

I hear all the time that “unemployment is greatly reduced, but the people aren’t feeling it.” When the media, talking heads, the White House and Wall Street start reporting the truth -- the percent of Americans in good jobs; jobs that are full time and real -- then we will quit wondering why Americans aren’t “feeling” something that doesn’t remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class.
Gallup Daily: U.S. Employment

The Gallup Daily U.S. Employment numbers look like this:

Gallup concluded the unemployment rate is 7.1% with another 15.9% working parttime who want a fulltime job. Those are daily numbers, not seasonally adjusted so cannot be compared directly with BLS monthly reports.

Let's take a look at the numbers two more ways with BLS data.

Participation Rate

The participation rate is percentage of the working-aged people (over 16) who are either employed or are actively looking for work. As you can see that number has plunged. However, the chart is skewed by two factors making it a poor choice as proof of how bad things are.

  • Mass entry of women into the workforce starting in the 1960s.
  • Willful baby-boomer retirement

Let's try one more way: Who is not working that arguably should be working?

Employment Rate of Those 25-54

Since 1999 the percentage of people aged 25-54 who are working is down quite a bit. To be sure, some of them are staying in school longer.

If you are in school and not working, you are not counted as unemployed. If you are in school and working you are counted as employed, even if you work 3 hours a week. These factors have an artificial positive bias for the unemployment rate.


Disability numbers have soared. And for extremely suspicious reasons. Disability fraud is rampant. If you are disabled, you are not in the labor force (and therefore not unemployed). Here are some links to consider:

Unemployment Rate Distortions

Because of all the distortions about what constitutes unemployment and employment, including frequent double-counting of part-time employment in the payroll survey, I believe it is purposely difficult to calculate a realistic unemployment rate.

No politician wants unemployment going up on his watch, so over time, the methodology of calculating has changed. Add in disability fraud and unwanted retirement and the number would soar.

I propose a better measure of unemployment would come from these simple questions:

  1. Do you want a job?
  2. Do you have a job?
  3. Are you physically able to work a job?

In regards to number three, one would need to weed out purposeful disability fraud, but even if errors were made in this category, the numbers would be far more reflective of what's happening than the current purposeful distortions.

The above questions would pick up students in school who would rather be working, and it would also pick up people on forced retirement whom would rather be working.

I define forced retirement as people out of money, with no income, not wanting to retire, but having to retire simply to collect Social Security money.

A realistic unemployment rate would factor in

  1. Disability Fraud
  2. Kids (and adults) hiding out in school because they cannot find a job
  3. Forced retirement
  4. Those who stopped looking for a job but really want one

What's a "Realistic" Unemployment Rate?

Based on demographic trends, I suggest the real unemployment rate after weeding out disability fraud, forced retirement, kids hiding out in school for lack of a job, and those who are not counted as unemployed simply because they gave up looking. Realistically, the unemployment rate is more like 9% than 7%.

Clifton says the official unemployment rate of 5.6% is "The Big Lie". I agree. The only dispute is the attempt to figure out "Just how big a lie is it?"

Mike "Mish" Shedlock

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