Professor Cole's Finance Blog

On Friday, Mar. 4, 2011, the Bureau of Labor Statistics (“BLS”) released the jobs report (more formally known as the Employment Situation) for February 2011. The headline numbers were a gain of 192,000 nonfarm payroll jobs and an unemployment rate of 8.9% (seasonally adjusted downward from an actual rate 9.5%). This was first month since April 2009 that the unemployment rate has been below 9.0%, but still represents 13.7 million workers who would like a job but can’t find one. Moreover, much of the decline from the 9.8% unemployment rate reported three months earlier is attributable to workers who have dropped out of the labor force after using up their unemployment benefits, which now provide 99 months of support. Since November, more than 900,000 workers have given up looking for work and exited the labor force. If we were to include them, the unemployment rate for February would have been 9.5% rather than the “green shoot” number of 8.9%. Indeed, the broadest measure of unemployment reported by the BLS—U6—was a seasonally adjusted 15.9% in February, and 16.7% on an unadjusted basis, representing 25.6 million workers.

This also highlights the importance of the BLS models used to adjust for seasonality and for “births and deaths” of new firms. Many economists and commentators have questioned whether these models have been used to overstate employment. Indeed, just last month, the BLS reported that it had overstated employment during 2010 by about one-half of a million workers. In January 2010, the BLS reported that it had overstated employment during 2009 by 1.4 million workers.

There is another source for employment data that casts further doubts on the accuracy of the BLS number. The highly respected Gallup organization surveys about 20,000 households each month. While less statistically reliable than the larger BLS household survey, a comparison of the unemployment rates reported by each is quite troubling. While BLS reports seasonal-adjusted unemployment falling from 9.8% in November 2010 to 8.9% in February 2011, Gallup reports unemployment as rising from 8.8% to 10.3% over the same period. On an unadjusted basis, BLS also reports a slight rise over this period, from 9.3% to 9.5%.

This job market continues to discriminate against men and minorities. Among men, the unemployment rate was 9.3% but, for women, it was only 8.5%. Among Blacks, it was 15.3%, but for Whites, it was only 8.0%. Among teenagers age 16-19, a group that is usually the first to lose their jobs during a recession, the unemployment rate fell was 23.9%. Clearly, education plays a major role in those who do and those who do not have jobs. The February unemployment rate for those with a college degree was only 4.3%; for those with some college or an associate degree was 7.8%; for those with a high school diploma but no college was 9.5%; and for those with less than a high school diploma was 13.9%.

During February, the average duration of unemployment increased to 37.1 weeks, up from 33.9 weeks in November 2010. The number of chronic unemployed—those out of work more than 26 weeks, declined to 5.99 million from 6.33 million in November 2010. However, the decline in the size of the labor force suggests that these workers simply gave up hope and exited the labor force. A total of 87,000 workers exited the labor force during February. This continues a bad signal because workers typically re-enter the labor force when labor-market conditions are improving.