Wednesday, October 7, 2009

How Reliable Are Unemployment Figures? Not Very.

Whenever we hear that unemployment is at 9.8%, we should take it with a grain of salt because we do not know how accurate the government's numbers are. According to the following post from Expected Returns, the labor department actually adds an arbitrary number into the calculation to account for new jobs created by newly formed companies that they think have started. See the following post for more on this.

From the New York Post, labor department comes clean about fake jobs:

In 11 of the 12 months, the government adds massive numbers of jobs -- sometimes more than 100,000 -- that it thinks, but can't prove, exist.

This is because the Labor Department uses something called the birth/death model, which assumes that no matter how bad the economy is, there are itty-bitty, newly-formed companies -- which can't be reached by government surveyors -- that are creating jobs.

Not only is the public fooled by this practice, but policymakers are being led astray. So the Labor Department, essentially, lied again when it reported last Friday that only 263,000 jobs disappeared from the economy during September.

For more on the bogus birth/death model, see this post. The birth/death model is one of the government's primary tools of obfuscation. Without questionable birth/death adjustments, we would be seeing unemployment well north of 10%.

Overstatement of Jobs Likely

Right after Friday's report came out, Bloomberg News called Chris Manning, the national benchmark branch chief at the Labor Department's Bureau of Labor Statistics, and asked about the 34,000 probably non-existent jobs.

"In this period of steep job losses, the birth/death model didn't work as well as it usually does," Manning told Bloomberg. "To the extent that there was an overstatement in the birth/death model, that is likely to still be there."

The Labor Department is not only still using this model, but it nearly doubled the number of phantom jobs for this September compared with the same month last year.

We are living in a time when reality is being replaced by propaganda. Anyone who has been laid off knows the real state of the economy and the job market. Month after month, initial jobless projections are revised downward by the government to little fanfare. Instead of properly addressing the unemployment catastrophe through jobs programs, our government is going the route of statistical games to cover up the fact that there is no recovery.

This post has been republished from Moses Kim's blog, Expected Returns.

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