Editorial
September
7, 2006
This editorial is
part of a series Mr. Robins*
is writing on
the ethics, and sometimes extraordinary biases he believes he has
found behind the design and presentation of many government statistics.
His view is that investors need to know much more about what is in these
statistics in order to optimize their returns. His research reveals many
surprises. For additional articles in this series, see
Editorials.
Revised and updated December 13, 2007
Unethical US Job Numbers?
by Ron Robins*
The business world waits with trepidation, the first Friday of each
month, the release of the US unemployment/employment numbers. Stock,
bond, currency and commodity markets often swing wildly with their
release. The media focus on the numbers presented, and discuss their
relevance to economic activity. But where is the analysis, the critique,
of how these numbers are generated -- or of their actual reliability?
Do all economists really believe that the US government's unemployment
data (and other statistics too) are beyond reproach? Are the big banks'
economists too afraid to dig into the numbers for fear of offending or
confusing employers and clients? Where is the role of honesty, of
ethical responsibility, to the publics these institutions serve?
Fortunately, discussion concerning the ethics and reliability of
economic statistics does occasionally appear.
For instance, last year Philipp Bagus asserted in an article, The
Problem of Accuracy of Economic Data, August 17, 200
(http://www.mises.org/story/2280)
"[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 no
estimate of statistical error within economics. The various sources of
error that come into play in the social sciences suggest that the error
in economic observations is substantial... Economic statistics cannot be
accepted at face value."
In my research on US unemployment data, I have discovered some
disquieting information. First of all, they concern the elimination of
‘discouraged workers,' who used to be in the figures.
Discouraged workers are those who have been looking for employment for
more than a year and have given-up looking for a job. They used to be
included in the main 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 in much the same way as it had
been historically, would be closer to 12%! (See
Welling@Weedon, February 21, 2006, Shadowing Reality
interview with John Williams). At the time of Mr. Williams citing
this, the US February 2006 unemployment rate was 4.7%, which is the same
as for November 2007.
The second major concern is the inclusion in the non-seasonalized data
-- which influences the media headlined seasonally adjusted numbers --
of escalating theoretically derived employment numbers from the
business ‘Birth-Death Model.' This model created by the US Bureau of Labor Statistics (BLS), tracks the net employment changes caused by
business births and deaths.
Notice how the job gains in the Birth-Death Model have grown from less
than half in 2004 to almost equalling the total employment gains in
2007? It begs the question as to how much of 2007's
employment
gains are theoretically derived, and how much are real? The BLS appears
silent on this point. With regard to the Birth-Death Model, the BLS
states, "{The} BLS will continue researching alternative model-based
techniques for the net birth/death component; it is likely to remain as
the most problematic part of the estimation process." Yes, it is
certainly problematic.
The lack of analysis of jobs and other US economic data by mainstream
economists and media is abysmal. Let economists and business journalists
especially, take a lead in an illuminating debate around the make-up and
ethics of such economic statistics. So far these individuals have really
let down the publics they serve in this regard.
----------------------------------------------------------
*
Ron Robins, MBA, is founder,
Investing for the Soul, (www.investingforthesoul.com),
Huntsville, Canada. He advocates, writes and teaches on the subject of
ethical investing. This is his second article
in an editorial series on Unethical Statistics. They concern the
ethics surrounding the construction and portrayal of US government
statistics. The articles are posted on his website and in other
publications. To contact him, e-mail to
Ron Robins or call 705-635-3034. |
