There does seem to be some disconnect between the statistics regarding the state of the USA economy and the general mood of the nation. On the one hand, some of the macroeconomic statistics such as the unemployment rates are so impressive as to be the envy of nations such as Canada and some Western European countries. On the other hand, there is a lot of disenchantment among the populace including complaints that countries such as Mexico have stolen too many jobs. The conflicting information above begs the question on how unemployment could be at record lows, while contemporaneously, complaints about lack of jobs are at a record high. According to Hubbard & O’Brien, (2015), the answer to the mystery above lies in how the Bureau of Labor Statistics (BLS) at the US Department of Labor computes its unemployment rates. It is the mode of computation not the actual situation on the ground that makes the unemployment rates in the USA look more attractive than those of Canada and some Western European nations.
To establish a background on how the US government calculates unemployment rates, it is critical to point out that the said calculations have massive political undertones. For a start, the unemployment rate has a bearing on the relationship between the government and the populace. With the USA being a democracy, a lot of effort is put in ensuring that the people and their government enjoy a good relationship. Among the reasons for the same is that how happy people are with the government, in part due to the low number of employees can determine of the sitting government gets a new mandate in the next election. According to Hubbard & O’Brien, (2015), when the numbers of unemployment seem to be decreasing in the election year as opposed to the previous year, the sitting president is usually re-elected, as happened to President Obama in 2012.
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On the other hand, the combination of the unemployment rate and the inflation rate is also a key determinant of the economic health of the nation. This combined statistic has, according to Hubbard & O’Brien, (2015) come to be referred to as the “misery index” (P. 402). A high misery index can be a pointer to failure by the government to keep the economy flourishing. By making these two arguments, Hubbard & O’Brien, (2015) can be said to imply that the sitting government might be inclined to calculate unemployment rates in a manner that keeps them as low as possible.
While the USA is busy trying to keep its unemployment rates as low as possible due inter alia to political reasons, other nations such as Canada and some Western European countries will be seeking to keep their unemployment rate numbers as accurate as possible. Logically, unemployment rates mean a comparison between the numbers of individuals within a country that do not have work, against all those who can work. For example, if a country has a population of five million people, out of that three and a half million are capable of working and seven hundred thousand are jobless. Unemployment rates will simply be 700,000/3,5000,0000 X 100 which makes a 20%. The statistic, therefore, reveals how many people in the population are capable of working but are not working thus making them unemployed.
The Bureau of Labor Statistics (BLS) at the US Department of Labor, however, takes an entirely different approach from the simple and direct one outlined above. For a start, the BLS never publishes results for the numbers of unemployed people against the total labor force. Instead, the BLS publishes the ratio between the numbers of people looking for jobs and not getting them against the total number of people who want to work. According to the BLS, workforce means, not all the people who want to work but rather those who are willing to work (Hubbard & O’Brien, 2015).
To use the example above, in a country of five million people with about three and a half million people who are capable of working, only three million may be interested in working. Under the BLS formula, the workforce will be 3 million, not 3.5 million. Logically, the 0.5 million people not looking for work will be deducted from the people who do not have jobs, leaving only two hundred thousand people without jobs. Under the BLS formula, therefore, unemployment rates in the same country will be 2000,000/3,000,000 X 100 which will amount to 6.667%. The unemployment rate will thus almost always be lower while using the BLS formula as opposed to when seeking to calculate the total number of unemployed people in the community.
Finally, according to Hubbard & O’Brien, (2015), the BLS approach for calculating unemployment rates is especially misleading when compared to the actual employment calculation method used in other countries. This is because one of the main reasons why people stop looking for jobs is because they have not been able to locate good jobs, yet they have been searching for so long (Hubbard & O’Brien, 2015). Such individuals still needs jobs but are simply not looking for them. Failing to factor them in among the unemployed is thus inaccurate. Further, the BLS calculates those who have part-time jobs as employed even if they would prefer full-time jobs but have been unable to procure them.
It can thus be said that the main reason why employment rates in the US are lower than in Canada and some Western European nation is euphemistically speaking because the BLS tips the scale in the ways outlined above. This fact explains why the unemployment rates do not match with the sentiment on the ground about unemployment in the USA. In the simplest of terms, the BLS formula for calculating unemployment rates is circumspectly designed to keep the numbers low, in part for political reasons.
References
Hubbard, R. G., & O’Brien, A. P. (2015). Essentials of economics. Boston, Massachusetts: Pearson
