The vanishing unemployment trick...

Making 9 Million Jobless "Vanish": How The Government Manipulates Unemployment Statistics

By Daniel R. Amerman, CFA

When we look at broad measures of jobs and population, then the beginning of 2012 was one of the worst months in US history, with a total of 2.3 million people losing jobs or leaving the workforce in a single month. Yet, the official unemployment rate showed a decline from 8.5% to 8.3% in January - and was such cheering news that it set off a stock rally.

How can there be such a stark contrast between the cheerful surface and an underlying reality that is getting worse?

The true unemployment picture is hidden by essentially splitting jobless Americans up and putting them inside one of three different "boxes": the official unemployment box, the full unemployment box, and the most obscure box, the workforce participation rate box.

As we will explore herein, a detailed look at the government's own data base shows that about 9 million people without jobs have been removed from the labor force simply by the government defining them as not being in the labor force anymore. Indeed - effectively all of the decreases in unemployment rate percentages since 2009 have come not from new jobs, but through reducing the workforce participation rate so that millions of jobless people are removed from the labor force by definition.

When we pierce through this statistical smoke and mirrors and factor back in those 9 million jobless whom the government has defined out of existence, then the true unemployment rate is 19.9% and rising, and not 8.3% and falling.

For the small percentage of people who are aware that the purported decline in unemployment rates is primarily based on the mysterious rapid decline in "labor force participation rates" rather than the number of new jobs, the government has a ready and sensible-sounding explanation: the Boomers are beginning to retire in large numbers, and with an aging population, the percentage of adults who are in the workforce should logically be declining.

Based on in-depth analysis of the government's own numbers, we will present herein the true picture: 74% of the jobless who have been removed from unemployment calculations are in the 16-54 age bracket, with only 26% in the 55 and above bracket. Yes, the population is aging - but the heart of the workforce participation deception isn't about the old.

In an extraordinarily cynical act, the government is effectively saying that because the job situation has been so bad for many millions of unemployed people in their 40s, 30s, 20s and teens, they can no longer be considered to be potential participants in the work force at all. Because there is no hope for them - they no longer need to be counted. And it is this steady statistical cleansing from the workforce of the worst of the economic casualties - of these very real millions of individual tragedies - that is being presented as a rapidly improving jobs picture.

What the government's statistical deception is hiding is a catastrophic degree of change in generational employment levels, with the situation being much worse for the young and middle-aged than what is publicly presented. As the fundamental force of aging Boomers increasingly collides with the fundamental force of an employment disaster among younger Americans, the results may change everything that we think we know about economic growth, budget deficits, Social Security and Medicare, as well as all categories of investments.

Read more:
http://danielamerman.com/articles/2012/WorkC.html