Fuzzy Math

As someone who works with numbers on a daily basis, I often hear statistics in the news that make absolutely no sense. For example, how can more jobs be lost and yet the unemployment number goes down. Commonsense tells us that if more people are losing their jobs the unemployment number should go up. I suspect economists are using some fuzzy math.

Part of the fuzzy math involves how economists determine who is unemployed. As someone who works regularly with numbers, these economists should conduct scientific sampling of people of working age and from this sampling extrapolate a number of unemployed and what percentage this is of the possible workforce much like pollsters do with political polls. However, this is not how economists come up with the unemployment number.

Instead, economists base unemployment figures on the number of people who file unemployment claims. There are numerous problems with this method. First, not all individuals who are out of work will necessarily file for unemployment. Some individuals want to continue working and may take a job that pays less. These individuals may not be out of work but they are underemployed and should be partially considered in the statistics.

Another problem with this method is that unemployment compensation does not last forever. If an individual is unemployed for a period longer than the duration of unemployment compensation, they are no longer considered unemployed under this statistical method. Perhaps this explains the fuzzy math. Unemployment for individuals who became unemployed at the beginning of the current recession has expired. The unemployment number would fall if more individuals are dropping off due to the expiration of their benefits exceed the number of new claims being filed. However, these individuals are still out of work. In fact, these chronically unemployed individuals are the ones most likely to file bankruptcy and have their homes go into foreclosure.

Jobs are still being lost and the individuals losing their jobs face financial disaster unless the economy turns around and they can find work. However, the current method of measuring unemployment is flawed and provides politicians an opportunity to tout that the job market is improving even when more individuals are losing their jobs. A method of statistical sampling as pollsters do in elections would provide a more accurate picture of the job market. With this truer picture of the job market to rely on, pressure will be placed on politicians and policy makers to make policy that actually puts people back to work instead of touting economic recovery even when jobs are still being lost.