September 7, 2006This editorial is part of a series Mr. Robins* is writing on the ethics, and sometimesextraordinary biases he believes he has found behind the design and presentation of many government statistics. His view is that investors need to know much moreabout what is in these statistics in order to optimize their returns. His researchreveals many surprises. For additional articles in this series, seeEditorials. Revised and updated December 13, 2007
Unethical US Job Numbers?
byRon Robins*The business world waits with trepidation, the first Friday of each month, the releaseof the US unemployment/employment numbers. Stock, bond, currency andcommodity markets often swing wildly with their release. The media focus on thenumbers presented, and discuss their relevance to economic activity. But where isthe analysis, the critique, of how these numbers are generated -- or of their actualreliability?Do all economists really believe that the US government's unemployment data (andother statistics too) are beyond reproach? Are the big banks' economists too afraid todig into the numbers for fear of offending or confusing employers and clients? Whereis the role of honesty, of ethical responsibility, to the publics these institutions serve?Fortunately, discussion concerning the ethics and reliability of economic statisticsdoes occasionally appear.For instance, last year Philipp Bagus asserted in an article,
The Problem of Accuracy of Economic Data,
"[That]we ... face the question of why the problem of accuracy of economic data is rarely mentioned or passed over in silence in economics, while in the physical sciences this problem is widely acknowledged." Further, "In contrast to physics, there is still noestimate of statistical error within economics. The various sources of error that comeinto play in the social sciences suggest that the error in economic observations issubstantial... Economic statistics cannot be accepted at face value."
In my research on US unemployment data, I have discovered some disquietinginformation. First of all, they concern the elimination of ‘discouraged workers,' whoused to be in the figures.Discouraged workers are those who have been looking for employment for morethan a year and have given-up looking for a job. They used to be included in themain unemployment numbers, but are now, conveniently left out! John Williams,statistician and economist, believes that when ‘discouraged' workers and other ‘distorting factors' are accounted for, then the true unemployment rate, measured inmuch the same way as it had been historically, would be closer to 12%! (See
Williams). At the time of Mr. Williams citing this, the US February 2006unemployment rate was 4.7%, which is the same as for November 2007.