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SPAETH: Breaking down the jobless numbers

The real unemployment rate

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President Obama and the Democrats are trumpeting the decline of the unemployment rate, but many people are confused by all the statistics. In general, statistics can't be trusted.

On Nov. 2, the Bureau of Labor Statistics announced that unemployment was at 7.9 percent, up from last month's 7.8 percent, but still down from the previous month's 8.1 percent. The economy added only 171,000 jobs in October, less than what is needed to absorb new job seekers, let alone take care of those currently out of work.

This is an important question: Is the economy improving or not? Can we depend on the numbers published by the government? Jack Welch, the iconic former CEO of General Electric, touched off a controversy last month when he tweeted that he thought the numbers were cooked. Though I don't think that is true, they are misleading.

It is the interpretation of the numbers that is so critical. First, the number of 171,000 "jobs gained" comes from a survey of about 140,000 "establishments" -- public, private, small and large, for-profit and nonprofit. The 7.9 percent jobless rate came from a survey of 60,000 households and included people who have started companies.

Today, about 2.9 million more Americans are working than a year ago. Still, as Wall Street analyst Markos N. Kaminis would say, "Temper your enthusiasm." The bad news is that the share of adults participating in the workforce, which many consider the real measure of employment, is still only 63.8 percent.

Of the people who say they are working, many are working only part time. Either they cannot find full-time work or their hours have been cut back. An increase in part-time work was what caused the overall unemployment rate to appear to improve so dramatically in September. Another reason to be skeptical of the survey that produces the unemployment rate is that 2.5 million people in September wanted to work and previously had searched for a job but weren't counted as unemployed because they hadn't actively looked within the past month. Another 3.3 million said they wanted a job but hadn't looked in a year. Neither of those groups of jobless people is counted by the government.

The problem is that the economy is growing at less than 2 percent a year, nowhere near what is needed for robust job growth. I have run a small business for 25 years. I'm not hiring. Neither are other small businesses. The National Federation of Independent Businesses did a survey that found just 4 percent of small businesses, the source of an overwhelming percentage of jobs, plan to add employees this fall. It's not hard to figure out why: We have no idea what our taxes will be next year, and we have a president who demonizes our success. The future is uncertain.

So what is the real unemployment rate? Mr. Kaminis argues that the equation should calculate underemployment and those workers who are described as displaced and detached, and that the real unemployment rate was 14.7 percent in August and September. Last month, Fred Hickey, editor of the High Tech Strategist and a longtime member of Barron's Roundtable, wrote, "Even after three years of 'recovery,' we are left with persistent unemployment."

Statistics can describe a situation, but they should not obscure it. We are headed for long-term structural unemployment, just like Greece and Spain. While Republicans and Democrats disagree about the way to fix it, the first thing is to measure the problem honestly.

Merrie Spaeth, director of media affairs for President Ronald Reagan, is a small business owner.

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