So to solve this dilemma we should compare today’s U6 to the U3 of yesteryear? Consumer spending is also at odds with sentiment – do we need to “fix” the spending data too? Doesn’t it seem much more likely that consumer sentiment is the flawed data series?

I don’t believe any of the several U3 changes you described resulted in a recognizable step-function-like change in the data, therefore each of these changes could only have introduced small biases. There’s no way these small biases could add up to the 420 basis point difference between U3 and U6.

The JFK and Reagan era changes can’t be used to explain why U3 is well below ‘92 and ‘03 peaks.

It just doesn’t make sense that U3 is really that biased and frankly I find ScottB’s argument compelling that none of these factors changed U3 in any measurable way.

“So either the Public is merely unhappy about other things (first we heard it was Iraq, now we hear its Gasoline) or the Unemployment Rate is failing to capture the full picture.”

Isn’t it much more likely that a poll of consumers’ subjective sentiment isn’t comparable over the decades? In today’s Internet age if a butterfly flaps its wings in Portland people read about it on their Blackberries in Topeka. It is said that we are more politically polarized than at any point in history. We have the most unpopular president in modern history. Any one of these factors could make it irrelevant to compare sentiment across decades.

1. I’ve already sent you a BLS memo that responded to Kevin Phillips’ charges. The memo describes precisely how the change in methodology in 1967 which clarified their treatment of discouraged workers had only a tiny affect on the unemployment rate. The memo also showed how they treated resident armed forces for ten years or so by producing an alternative unemployment rate. However, the civilian unemployment rate was not affected.

2. The memo you cite at http://www.bls.gov/cps/eetech_methods.pdf does indeed document changes in 1994 in the definition of discouraged workers and part-time employed for economic reasons. What you don’t seem to understand is that neither of these changes affected who was counted as employed, and who was counted as unemployed.

The household survey sorts people into one of three big buckets: employed, unemployed, and not in the labor force. The labor force is the sum of the first two buckets. The unemployment rate is the ratio of the unemployed bucket to the labor force bucket.

Discouraged workers are a subset of those not in the labor force. Changing the definition of discouraged worker didn’t move anybody from one bucket to another, it just changed the sub-buckets in the third bucket.

Part-time workers for economic reasons are a subset of the employed bucket. Changing the definition didn’t move anybody into or out of the employment bucket.

U-3 was not affected. U-6 was affected, however. I do not know if BLS ever went back and reestimated the historical U-6, it looks like they start the series in 1994 on their website.

My point remains, is that U-3 is pretty consistent over time. I don’t know enough about the oversampling of inner cities–I don’t know if when the sample was enlarged again a couple of years ago whether the oversampling was resumed. I would probably agree with you that there was some impact on U-3, I just don’t know how much. The decennial Census has undoubtedly undercounted inner city poor, along with Indians on reservations. Since the household survey is based on the Census, there is probably undercounting of unemployed.

You ask for details, I provide them, and your response is to claim “Incorrect” but you provide no sources.

Here are my sources — please provide yours.

Measuring Unemployment in the Nineties
http://www.jstor.org/pss/2749542

Historic Annual Employment (see footnotes each year for changes)
http://www.bls.gov/cps/cpsaat1.pdf

HISTORICAL COMPARABILITY Household Data
http://www.bls.gov/cps/eetech_methods.pdf

1. BLS under JFK created a category of unemployed called discouraged workers.

INCORRECT. Discouraged workers predates the 1960s as a concept. What BLS was criticized for in the 1960s was that some discouraged workers were counted as unemployed based on information they volunteered in the monthly household survey. Most discouraged workers were not counted as part of U5 (the old U3). When BLS piloted a new methodology to treat discouraged workers consistently as not being part of the labor force (and therefore not part of the unemployed), they found it changed the unemployment rate by at most one tenth of a percent, within the margin of error.

2. Under Clinton, BLS redefined the work force to include only that small percentage of “discouraged workers” who had been seeking work for less than a year.

INCORRECT. First of all, “work force” is not a precise term. Let’s use “labor force”, which is the sum of the employed and the unemployed. Discouraged workers have never (conceptually) been included as part of the U-3 unemployment rate. In the mid-1990s, BLS defined discouraged workers to be those who were NOT looking for work (and therefore not in the labor force and not part of the unemployment rate) BUT had looked for work, or been employed, sometime in the past year. Left out of the definition were people not in the labor force, who reported that they would like a job but had given up looking, and who had not been employed or done any jobseeking activity in the past year. This change had NO EFFECT on U-3. What BLS tried to do was to bring some kind of objective measure to differentiate discouraged workers from, for lack of a better term, slackers. Whether you agree that their definition is a good one, it is, at least, an objective measure.

3. (1983): BLS: Persons in the Armed Forces stationed in the United States will be included in the national labor force and employment totals and thus in the base for the overall unemployment rate. By adding millions of soldiers, sailors and marines to the Labor Pool, unemployment rate was driven down.

INCORRECT. BLS started publishing two unemployment rates, U5 (the old U3) and U5A (or something like that), which was slightly lower because it added in resident armed forces to the unemployed. Nobody paid any attention to the armed forces rate, once they stopped laughing. BLS dropped the alternative a number of years later. U5 (the old U3) was never affected by this temporary alternative.

(Year?) “Part-Time for economic reasons” used to be considered Unemployed — now, they are in a different category (”Part-Time for economic reasons”) and don’t count in U3.

INCORRECT. U3 and its predecessor U5 have never included part-time for economic reasons.

You owe me a beer.

And in answer to Chris’s point above about prisoners, BLS measures the civilian noninstitutionalized labor force and unemployment rate. Folks in institutions like prison aren’t counted. It would be nice if we quit locking up so many people of color, but that’s an issue for another blog.

This minimizes the number of variables that the government can lie about.

BR: As much as I appreciate your input when it comes to murky gov statistics, unsubstantiated accusations are not helping. It would be helpful though if you would update this post by giving convincing evidence about the above “factors”.

I concur with Rex and Steve on this one.

How many people are employed, but outside of the trades/professions in which they’re trained?

To go more macro, how many people could find themselves holding FT jobs if single-payer health insurance were a reality?

How are these stratospheric gas prices affecting employment trends?