No, the Unemployment Rate is Not 42 percent, but It’s Not 4.9 Percent Either

unemployment image

Image from:http://www.breitbart.com/big-government/2016/03/05/is-the-unemployment-rate-lying-to-you/

The unemployment rate might be one of the most contentious measurements of the status of the economy. Numerous economists have claimed that the “official” unemployment rate, which is released every month by the Department of Labor (DOL), actually masks millions of people who should be considered unemployed. The U-3 rate, which the DOL reports to be 4.9 percent, does not consider key “missing” people in the workforce: discouraged workers who have stopped looking for work due to a depressed labor market, marginally attached workers who did not look for work at the time the survey was conducted, and part-time workers who would rather work full-time. When these people are taken into consideration, the unemployment rate stands at 9.7 percent.

However, even the highest rate of unemployment reported by the DOL is nowhere close to what Presidential candidate Donald Trump speculates the unemployment rate might actually be. During his New Hampshire victory speech, Trump stated: “Don’t believe those phony numbers when you hear 4.9 and 5 percent unemployment. The number’s probably 28, 29, as high as 30. In fact, I even heard recently 42 percent.” Trump has repeated these sentiments on numerous occasions. While on the surface it might sound like he is pulling numbers out of thin air, it is actually very likely that he “heard” 42 percent from David Stockman, who was the Director of the Office of Management and Budget during Reagan’s presidency.

In Stockman’s blog post from June 2015, “The Warren Buffett Economy –Why Its Days are Numbered (Part Four),” he states “…there were 180 billion unemployed labor hours, meaning that the real unemployment rate was 42.9%.” Stockman’s numbers are right, but his method is horribly wrong. The unemployment rate, as defined by the Bureau of Labor Statistics, is the measure of the amount of non-institutionalized people, ages 16 and over, who are working compared to those who are not working but want to work. For these purposes, people who are enrolled in school, in the military, imprisoned, or retired are not considered to be part of the labor force.

Stockman did not use the traditional definition of the unemployment rate; instead, he based his rate on the amount of hours worked. According to Stockman’s calculations, there are 210 million Americans between the ages of 16 and 68. He assumes that, if all of these people were working full-time (which he determines to be 2,000 hours per year), there would be 420 billion potential labor hours every year. Since there’s only 240 billion hours supplied to the labor market, Stockman concludes that the unemployment rate is 42.9 percent.

This calculation is heavily flawed because it includes all people between the ages of 16 and 68 as potential workers, even those who are not expected to work. While Stockman somewhat acknowledges this flaw, he flippantly dismisses these people as a small portion of his sample. In reality, they account for over 33 percent of Stockman’s “potential workforce.”

According to Stockman’s model, all 8 million children between the ages of 16 and 18 should be working full-time. This seems highly unlikely since the vast majority of them are still in secondary school. Stockman also assumes that all 20.6 million undergraduate and post-baccalaureate students should be working full-time. He then includes 10.4 million mothers who stay at home to raise their children and almost 21,000 people who choose to work part-time.

Additionally, Stockman’s potential labor force is comprised of a large portion of people who are most likely retired. According to a Gallup poll conducted in April of 2015, the average age of retirement for Americans is 60. Stockman includes all employers up to age 68 as potential full-time employees, which means that there are potentially 14 million people included in his assessment who are probably retired.

Stockman also assumes that all people within his potential workforce are able-bodied, but this is simply not the case. About 8.9 million people could be in the workforce, but are not due to a disability. Furthermore, Stockman’s high unemployment rate incorporates people who do not have the option to work, such as nearly 7 million people who are currently incarcerated and the 1.1 million people who are serving in the military. For Stockman’s purposes, over 70 million people who are not expected to work are all considered unemployed.

While the unemployment rate is not perfect, it still provides a much more accurate depiction of the economy than Stockman does. One can understand why Trump relies on Stockman’s model, though. His exaggerated unemployment rate resonates with voters who are concerned about the economy. His statements also undercut any progress that could be attributed to President Obama. While his rhetoric is substantiated by a former high-ranking political appointee, the model is faulty and unreliable at best.

By,
Brie McLemore
M.P.P./ M.A. in Women and Gender’s Studies 17′