Monday, August 6, 2012

THIS Is How The Unemployment Rate Is Derived

THIS Is The Truth About The Unemployment Rate
The methodology the BLS uses to calculate the unemployment rate is fundamentally flawed. Contrary to popular belief, the bureau doesn’t tally numbers from state employment agencies. In fact, it derives its figures from an unscientific telephone survey.

Each month the BLS compiles unemployment data from a US Census Bureau telephone survey of approximately 60,000 households. As per internal regulation, the Census can only contact prospective survey participants via land line. Therein lies the fatal error: According to the Centers for Disease Control and market reports from the telco industry, more than 1/3 of Americans don’t have access to a land line at home, including 50-60% of those age 18-30 and 40-50% of those living below the poverty level. As unemployment rates for the young and the poor run nearly twice the national average, there is a high probability that these groups are severely undercounted.

How much are the young and the poor undercounted? Using a fair sample of 50% cell phone respondents, I calculate by more than 2 million. Adding 2 million to the official tally of 12.7 million unemployed, we get a U-3 rate of 10.3%.

The BLS definition of “underemployment” is working part-time hours while desiring full-time work. This definition has nothing to do with skill utilization or pay scale. Since there are approximately the same number of underemployed Americans as there are unemployed Americans and the U-3 rate is likely under-calculated by 2 million, the U-6 rate (U-3 rate plus the underemployed) is likely under-calculated by 4 million. Adding 4 million to U-6 would put the rate at 20%, approximately the percentage Gallup estimates. That would correspond to 28 million displaced American workers.