- The Washington Times - Monday, July 14, 2003

According to the media, the labor market worsened in June. Here’s what our major newspapers reported.

The Washington Post: “The job picture worsened.” The Los Angeles Times: “The US job market worsened.” The New York Times: “The labor market got tougher.” Other reports were similar.

But did the labor market really worsen last month? It would appear so at first glance. According to the Bureau of Labor Statistics (BLS), the number of nonfarm payroll jobs was 30,000 lower in June than in May, and the national unemployment rate rose from 6.1 percent in May to 6.4 percent in June.

However, numbers are not always what they seem.

The payroll employment numbers are based on a sample of about 160,000 businesses and government agencies, covering some 400,000 work sites nationwide. The establishments in the sample account for about one-third of all nonfarm employment.

All survey results, however, are subject to measurement error. But the error itself can be measured and must be taken into account in interpreting the survey results. In the case of total payroll employment, the standard error for monthly changes in the data, according to the BLS, is larger than the 30,000 “decline” in June employment. That being the case, the only fair interpretation is that payroll employment was stable last month. In its employment summary the BLS correctly reported that “nonfarm employment was essentially unchanged in June.”

An alternative and more comprehensive BLS measure of total civilian employment, based on a 60,000 household sample, showed employment in June rising by a sizable and statistically significant 251,000. Taken together, the results of the two surveys hardly support the conclusion that the employment picture worsened last month.

But the bigger headline story was the rise in the unemployment rate

To be officially counted as unemployed, jobseekers must have looked for work in the past four weeks. People who want and are available for a job but have not actively looked in the past four weeks, although they may have looked just five weeks ago, don’t qualify to be counted. The labor force is dynamic, and job seekers are constantly crossing the four-week definitional line. When jobs are hard to find, as they have been for more than two years, more of the jobless wait on the sidelines for signs of the labor market to improve before taking up job search.

Last month, more than 600,000 people entered the labor force, most of whom looked for but failed to find work. Perhaps their hopes were raised by the well-advertised new tax cut package and its promise of jobs. Or perhaps they were encouraged by the rise in the stock market or by statements in the news that near-term economic prospects looked rosier. By changing their status from inactive to active jobseekers, the previously “hidden” unemployed became officially counted and thus increased the unemployment rate by 0.3 percentage point.

But is this a real rise in joblessness, in the sense that more people became worse off economically? No. People who were already unemployed but not counted simply crossed the definitional line and became counted. In a sense it’s a statistical illusion. The more serious situation is when a rise in unemployment is accompanied by a significant drop in employment, but that did not happen last month. All told, a fair interpretation of the June data is that the labor market stabilized after many months of declining employment, a hopeful sign that the worst is behind us.

It would be wrong to conclude from the foregoing that the official definition of unemployment is somehow faulty. It is not. The line has to be drawn somewhere on who to count and not count, and the choice of a four-week job search cutoff is time-tested and reasonable. But the labor force data are not always easy to interpret. The press needs to examine the numbers more carefully before rushing to report. At the very least, they ought to heed the BLS interpretation of the data.

Alfred Tella is a former Georgetown University research professor of economics.


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