Lying With Statistics (part 2)...

As a follow-up post to “Lying with Statistics”, here is a little more information that was requested by one of our readers.

I compiled the chart below from a couple of sources. You’ll notice the “official unemployment” rate goes all the way back to the 1940s, yet the U-5 and U-6 numbers begin in 1994. Here’s some background as to why I’m showing it this way:

For starters, you need to know that the Bureau of Labor Statistics (BLS) uses statistical information compiled from the Current Population Survey (CPS). The CPS is a survey conducted by the United States Census Bureau for the BLS.

The CPS began in 1940, and responsibility for conducting the CPS was given to the Census Bureau in 1942. In 1994 the CPS was redesigned as a result of research that started in 1986 and a complete overhaul occurred relating to how the CPS was administered and what type of questions were asked.

Prior to 1994, the alternate measures of unemployment had different names because the BLS drastically revised the questions in the CPS and renamed the measures. U-3 and U-4 were eliminated and the U-5 (the “official” unemployment rate reported up to 1994) remained the same measure but was renamed U-3. U-6 and U-7 were revised and renamed U-5 and U-6.

Confused yet?

Let’s show it this way:

CPS alternate measures of unemployment before 1994:

• U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
• U-2 Job losers, as a percent of the civilian labor force
• U-3 Unemployed persons aged 25 and older, as a percent of the civilian labor force aged 25 and older (the unemployment rate for persons 25 and older) *To be eliminated after 1994*
• U-4 Unemployed persons seeking full-time jobs, as a percent of the full-time labor force (the unemployment rate for full-time workers) *To be eliminated after 1994*
• U-5 Total unemployed persons, as a percent of the civilian labor force (“official” unemployment rate)
• U-6 Total persons seeking full-time jobs, plus one-half of persons seeking part-time jobs, plus one-half of persons employed part time for economic reasons, as a percent of the civilian labor force less one-half of the part-time labor force *To be renamed U-5 after 1994*
• U-7 Total persons seeking full-time jobs, plus one-half of persons seeking part-time jobs, plus one-half of persons employed part time for economic reasons, plus discouraged workers, as a percent of the civilian labor force plus discouraged workers less one-half of the part-time labor force *To be renamed U-6 after 1994*

CPS alternate measures of unemployment after 1994:

• U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
• U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
• U-3 Total unemployed, as a percent of the civilian labor force (“official” unemployment rate – formerly U-5)
• U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
• U-5 Total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers (formerly U-6)
• U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers (formerly U-7)

With such changes occurring in 1994, I think it’s best to simply start the data there to reflect the new way of reporting for U-5 and U-6. Anything I could find for U-6 or U-7 data before 1994 was scarce at best as well as conflicting. So as to not make a possible error in reporting U-5 and U-6 before 1994, I’ll show it this way. What did carry forward was the “official” unemployment rate (regardless of it being U-5 before 1994 or U-3 after) – I’m showing that all the way back to 1948.

I’ve also included a chart showing 1994 to present.

And now, to the charts!

Note: the blue shaded areas represent recessions.

Click on the image to open a larger view in a new window.

I would like to take a moment and share some of my reflections with you, dear reader. Here at Candid Financial Conversations, I admit, I write a lot of sarcastic and jabbing posts. I probably step on toes. As I’ve said before, my attempt in this blog (aside from general education for the common investor) is to make you feel a bit unsettled. If you don’t get uncomfortable about the current situation, how can you expect to have any movement whatsoever? The worst enemies to democracy, change, and helping shape the future are apathy and comfort.

All that being said, know that I don’t take the reality of unemployment lightly. We have and are continuing to undergo a truly historic economic and financial downturn (in spite of what you may hear from those on TV – our beloved “sensationalist talking heads”). This downturn affects individuals, families, and communities. It’s because of this very reality of unemployment and job loss due to these kinds of circumstances that I feel a duty to pull back the curtain and expose the wizard. What I cannot stand is for those in power to mislead through the use of spurious and fallacious statistical trickery for the benefit of political gain and/or repression of the masses. It is truly unacceptable.

Some of you may have been or are currently affected by the current economic situation and have lost a job. My heart goes out to you and you have my prayers…

Respectfully,
~Aaron