Unemployment – Are the numbers right?

Last week I posted about Unemployment. I  talked about how the government gets the numbers that we hear in the news. Today I want to start talking about a couple of places where these numbers get off track from the jump.

When you boil it all down, it really comes down to one thing: PEOPLE LIE!

 They may lie because they are proud or they may lie because they are greedy. When it comes down to it, the lack of absolute truth when someone from the BLS calls to inquire about your employment status causes the numbers to be wrong.

Liar’s in this case come in two forms – the Cheater and the Proud.

The Cheater creates what we call Phantom Unemployment.  These are people who say they are unemployed but aren’t really seeking work. They cause the Unemployment figures to be quoted higher than they really are.

Let’s say you are, umm, I dunno, my sister. You have a history of taking temporary jobs and working just enough that you don’t get fired, but not enough for the job to rehire you at the end of your term. Once they don’t re-up your contract, you qualify for unemployment.

You like free money as much as the next girl, so you do the bare minimum to “look” for a job so that you can continue getting your unemployment benefits, not really planning on actually finding a job and ***having*** to work.

When the government calls you randomly and asks if you have a job. What do you tell them?  You tell them you don’t have a job. Duh


Next they ask you, “Are you looking for work?” Here you have two choices as a rational individual.

  • Do you tell them you are chilling at home and not looking for a job? Of course not – you are getting unemployment benefits. Telling the truth risks losing your unemployment benefits as well as possible criminal charges because every time you claim your unemployment check, you certify that you are looking for work.
  • Do you tell the easy lie? Yes you mess up the numbers, but you are looking out for #1 or your happy ass would have really been looking for a job in the first place.

Once you go with the lie as most people will, you end up being classified as Unemployed as opposed to NILF (that’s Not In Labor Force for all of you American Pie Fans). This means that you have Inflated Unemployment Rate to be reported as HIGHER than it should be.

Next time we will look at the Discouraged Worker and how pride causes the Unemployment numbers to be reported  lower than they really should be.

Weekly Link Love!

I am participating in the Yakezie Challenge and plan on posting links that I think you will enjoy.  Here are some articles I stumbled across in the last week that I really enjoyed:

MD at Studenomics posted The Hardest Part about Getting a Business Off the Ground. He focuses on how making that first dollar can inspire you towards greatness! I so agree.

Khaleef at Faithful with a Few Cents posted about the Contingent Workforce and how the nature of work is evolving from the full-time gig to more of a temporary string of jobs.

Crystal at her new blog How I Make Money Blogging posted about getting a new blog off the ground. From what I can tell, she is the hardest working woman in the blogosphere and an inspiration. I plan on taking her advice!

Hopefully you will enjoy these too! If you have read or written any internet gold, please comment and let me know. I want to read it too!

Did I really just compare the Fed to a Marijuana Grower?

Every once in a while I will get a kid who just can’t wrap their mind around the idea that the Fed get’s to effectively create money supply out of nothing. They just can’t reconcile the fact that the mint gets to print pieces of paper that look like dollars and sit in a vault until the Fed decides to make them money by releasing them out to the public.

In an excellent display of teaching and total abandon of professionalism, I explained to a classroom of 40 students that the Fed was like a Marijuana grower with the monopoly on the market. They get to grow their good from nothing other than paper and ink and decide when to release it on to the market so they can manipulate the market price and everything else that it affects. 


So What’s up with Unemployment?

I think that everyone would agree with me that unemployment is pretty darn high these days. I wanted to explain how they calculate the unemployment statistics, some of the places that it can go wrong, and how we can start to unwind why it is so high still. Today I’m going to focus on how they get to the number you hear quoted in the news.

Unemployment data is gathered by having the BLS call 60,000 households monthly.They believe that this is a large enough sample size that it gives you a good representation of the economy as a whole. Once you take spouses and what not in to account, you end up with about 110,000 people who report monthly.

Basically when you get the phone call you are asked a series of questions to determine:

  • Are you employed
  • Do you want a job, and
  • Are you able/available/looking for work?

If you are able, available and looking for work, but do not have a job, that is when you get classified as unemployed.

The way they calculate the actual percentage statistic that you hear quoted is by taking the number of unemployed and dividing it by the total number of people in the labor force (employed + unemployed).

If you don’t want a job, you are classified as “Not in Labor Force” or NILF as like to call it. Hey it rhymes with MILF and gets a good giggle out of a room of 20-year-old boys. Do you see why I don’t want my employers to know about this blog???


Yakezie Challenge

I’m joining the Yakezie Challenge! The goal of this is to network and selflessly promote other bloggers. To that end, here is one of my favorites: Thousandaire.com.

Kevin is high-larious and has some outstanding content. His videos are the bomb and I shamelessly show them to my classes because they are the greatest ever!

Fun with Old People Part Two : Keynesian Economics

So we talked about Classical Economics, which was all well and good until The Great Depression came along and as it turns out, people really weren’t keen on the idea of sucking it up, waiting it out and working for a penny in the mean time.

In response to this JMK (that would be John Maynard Keynes) reasoned that:

  • Prices were not perfectly flexible – especially on the down side of things.

Based on this, he decided that Government should intervene by either spending more money or cutting taxes so that consumers could spend more money and it would speed up the process of arriving back at full employment GDP and cut out a lot of the pain in the middle.

It’s not an entirely bad plan, because the original idea for increased government spending was to do it through acceleration of projects that would eventually need to be completed and by providing a bit of a safety net to people that really needed it.

Insert tangent here: The down side of that is that all good things end up getting abused and acceleration of necessary projects has a tendency to become pork barrel spending and a minimalist safety net is easily abused if it does not leave proper inspiration for people to actually return to work instead of just living off of said safety net.

Keynes believed that once this new money was injected into the system it would effectively be recycled being spent over and over based on the consumer’s marginal propensity to consume (the amount of each dollar earned that is actually re-spent). This would create a multiplier effect that could close a relatively large gap between the amount of unemployment and output in a recession and where it should be in the long run.

Classical Economics the Easy Way

So I have a confession to make. I am not really sure that I ever understood Classical Economics until I started teaching it. Truth of the matter is that I’m not sure I understood a lot of Economics until I started teaching it.

Here is the short story of Classical Economics:
Once upon a time, there was an old dude named Adam Smith. He believed that all prices were flexible and that even if all you could get was a penny an hour, you would eventually take a job. (Insert red flag here – although I will buy a Christmas tree in July if it’s cheap enough!)

Based on this assumption, he believed that an economy would always find its way back to its long run full employment level of production. (AKA the amount of stuff we should be making when everybody that is actually supposed to have a job has one and is working their ass off.)

If the economy was in a recession, he knew that:

  • More people were unemployed than should be – Unemployment is higher than the natural rate to get technical
  • We weren’t making as much stuff as we should be – GDP is lower than it should be

He then argued that:

  • People still needed to eat, so they would compete for jobs and drive down the market wage.
  • Once companies were paying less out in salaries, it would be cheaper for them to make products, so they would make more.
  • Once they decided to make more stuff, they would hire more people.

He believed that as the economy went through this process, unemployment would creep down to the natural rate over time and output would creep up. Since this would all occur as the result of flexible prices we should just suck it up and let nature take its course with no government intervention necessary or desired.