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Ethics and the Unemployment Rate

By Jonathan B. Wight

When some folks who are unemployed or underemployed hear Trump claim that economists are liars, that the real unemployment rate could be as high as 42%, these people nod enthusiastically.  To each who is in pain, it is comforting to “know” that many more are in your shoes, that your economic disaster is not caused by your own faults, but due to circumstances beyond anyone’s control. No surprise that such a claim that economists lie would be a vote getter.

That is why the reported unemployment rate of 4.9% is greeted with so much suspicion.  How could it be so low and my prospects so glum?

The New Yorker has a helpful piece, showing where Trump’s alleged 42% number likely comes from.  It comes from… David Stockman… the infamous fabricator of economic data when he was the director of the Office of Management and Budget under Reagan (credit to WaPo for this info).  Talk about the pot calling the kettle a bad name!  And for full disclosure, Stockman is not an economist, which should be obvious.

To get to 42%, Stockman takes every person between the ages of 16-68 and claims that if they are not working, then they are by his definition, unemployed!  There’s a lot here to unpack. 

  1. First, let us agree that the definition of unemployment necessarily involves ethics, because to define an economic term requires that values be introduced. Every economic variable is, to some degree, a normatively derived definition.  To define unemployment, we state that someone must have actively looked for work within the previous 4 weeks.  But why is 4 weeks the magic number?  Why not 2 weeks or 6 weeks?  Using 2 weeks would drop the UE rate; using 6 weeks would raise it, with ethical implications for public policy. 
  2. Every economic variable also has to be measured, introducing ethics into the survey design and execution. According to the Heisenberg principle, it is impossible to measure something without changing it.  When the Labor Department sends surveyors door-to-door, their activity could change the unemployment rate!  Someone loafing on the couch answers the door, and after admitting to the surveyor he hasn’t looked for work in last 4 weeks, now gets off his butt and goes out job searching.  Measuring UE causes someone to change their behavior.
  3. But is Stockman’s approach to measuring UE ethically justifiable? I would say only if you are a pure communist, and think that government owns every citizen’s labor. In this view, if any citizen between 16-68 is not working, they are shirking their obligations to the state.
  4. Most of us take a different ethical approach, which allows people reasonable amounts of freedom to make choices such as leaving work to go back to school, staying home to raise children, leaving a paying job to work unpaid as caregiver for parents, or simply retiring at 55 to float around on a yacht.

According to the latest official report, the largest measure of unemployment (U6) includes all persons marginally attached to the labor force, including discouraged workers, plus those working fewer hours than they desire, and so on.  This amounts to about 10% or one-in-ten as a national average.

One can quibble about this, because averages can mislead and it sure seems low in some communities.  But to get to Trump’s number—4 times as large—requires an ethically challenging definition of unemployment.

Contrary to what Trump has said, most economist at the Labor Department feel ethically-duty bound to correctly report the unemployment data in an environment of transparency and accountability. Let’s hope it stays that way. 

Comments

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...and the /employment/ data, too!

; )

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