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The Mystery of Falling Unemployment

Sunday, February 7, 2010, 10:40 AM
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In January, the rate of unemployment was said to have reduced from 10.0% to 9.7%.  I cannot resist wading into this story, although I tried.  Here goes.

One of the (many) quirks in the US methodology for measuring employment and unemployment is that two entirely different methods are used and reported.  One, called the 'establishment survey,' gives us the headline job gains or losses that are reported.  For January 2010, that number was -20,000, indicating that more people were out of work in January than December.

The other, the 'household survey,' delivers us the rate of unemployment, which fell from -10.0% to -9.7%, indicating that fewer people were out of work in January than December.

These are entirely separate surveys, and they are nearly impossible to directly compare.  Still, over time, they should at least be directionally aligned, and this departure between the two will resolve itself sooner or later.

I believe that the household number is overstating the gains, and here's why.

 

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