The RBA must ignore ABS unemployment numberwang

Via FTAlpahville comes a VERY IMPORTANT post for Australia:

This is a guest post by Leo Hindery, Jr, a member of the Council on Foreign Relations and formerly CEO of AT&T Broadband and its predecessor, Tele-Communications, Inc. (TCI). He is currently Chairman and CEO of Trine Acquisition Corp., a NYSE-listed company which he founded.

The way the Bureau of Labor Statistics calculates the unemployment rate, a key indicator US lawmakers use to gauge the health of the economy, has always been misleading due to the volume of unemployment categories it ignores.

But now, more than ever, these failings must be addressed to ensure stimulus aid bills are not crafted around distorted BLS numbers that fail to adequately address the severe economic pain still being felt throughout the country.

Looking at the BLS unemployment rate, which has slowly come down since it peaked in April at around 15 per cent, it might seem as though the economy is clearly on the mend. Indeed, this month, the BLS reported that the official jobless rate in August was 8.4 per cent, or 13.6m unemployed workers, down from 10.2 per cent in July.

But the reality is that the BLS standard of measurement is fundamentally flawed, as the official rate is designed to ignore exactly the types of circumstances that are so prevalent today.

Amid the pandemic, legions of workers have been forced from full-time jobs into part-time positions out of necessity; others have not searched for a job in the past month because of availability, skill or personal reasons; some have put their job-searches on hold within the past four weeks despite wanting to work; and others have put their job-search on hold altogether over the past 12 months. BLS excludes all of these millions from its tally.

The criteria used by BLS differs in meaningful ways from those used by other countries. Canada, for example, includes people who weren’t able to work in the past month because of personal reasons or family responsibilities. Additionally, in both Canada and Europe, so-called passive jobseekers — those who read job postings but have not knocked on doors to secure an interview, for instance — are included in the unemployment rate whereas they’re excluded in the US.

BLS’ sin of omission is a problem I’ve been warning about for decades. It is why, on the first Friday of every month since 2006 when the Great Recession was first brewing, I have distributed a memo to Congress and others that provides a more accurate picture of the state of unemployment. I use a figure known as the real unemployment rate, which, unlike the BLS announced rate, includes those who are underemployed, marginally attacheddiscouraged or temporarily removed from the labour market:

© Chart courtesy of

As Congress weighs another round of relief, it is clear that this is the barometer that should be informing policy decisions.

In August, the real unemployment rate, including all aspects, was 16.8 per cent, or 28.2m unemployed workers, much higher than the official BLS rate of 8.4 per cent. This gulf is consistent with years of data showing that the real unemployment rate is often at least 50 per cent higher than the BLS count.

Eschewing the deceptive BLS figure is not an academic exercise. Republicans will no doubt wield the falling unemployment rate as a cudgel against efforts to expand and extend safety-net programmes — including unemployment insurance, food assistance and rent and mortgage aid — as well as aid for states facing enormous budget shortfalls.

Indeed, based on the idea that the shrinking BLS number means there is less of a need for relief, Republicans already unsuccessfully tried to advance a ‘skinny’ stimulus bill that would have slashed supplemental unemployment benefits from $600 to $300 per week and limited the amount of aid provided to ailing state and local governments. Cutting emergency support now is the wrong approach and Democrats should push for a much larger package.

Further, as US lawmakers begins to consider long-term strategies to help our country rebuild from the worst economic crisis since World War II, Congress has a responsibility to set benchmarks for success. In order to do so, lawmakers must have a clear-eyed view of the scope of the challenge ahead and reliable tools to gauge success from month-to-month. Relying on a misleading and understated picture of unemployment is a recipe for disaster, leading to policies which don’t go far enough in creating economic opportunities for those who need them the most.

The ABS unemployment rate is disgrace today, with much more in common with the politically charged US version than other more utilitarian regimes.

The only number that matters now to wages and inflation is the underemployment figure of 23%. The RBA should ignore all others.

David Llewellyn-Smith
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  1. Jumping jack flash

    “The ABS unemployment rate is disgrace today, with much more in common with the politically charged US version than other more utilitarian regimes.”


    Under the “Howard Measure” of unemployment 5% is pretty much the limit of what it is designed for. Anything above that means that something absolutely catastrophic is happening, and the place is just about to go up in flames.

    But I wonder now if this new definition had something to do with that document we signed back in the 90’s that gifted us a central bank and Thatcherism?

  2. happy valleyMEMBER

    Like all other CBers, the RBA happy clappies will be guided by the data – that it is rubbish, is irrelevant; expecting them to see through it or question it, will require a pay rise, some brain cell use and maybe even some overtime?

  3. They will have to do something if they change the scorecard. Its easier not to change the scorecard.

  4. Display NameMEMBER

    Inflation, Unemployment and GDP. All BS and useless for any measure of where we are economically.