Politics and Government & Economic Development and Government and Economic Development

Determining jobless rate far from exact science

December 4, 2011

So how bad is the jobs situation in Indiana, really?

The question is at the heart of the upcoming battle between business and labor that is practically guaranteed to push all other issues aside during the 2012 session. And yet the key number used nationally to determine just how deep in the muck we are, the unemployment rate, is the subject of its own debate.

"Everybody knows the number is very imprecise," Gov. Mitch Daniels said.

But that "imprecise" number will be a critical figure in the looming battle over a "right to work" proposal, the same issue that sparked a five-week walkout by House Democrats earlier this year and threatens to throw the 2012 session into chaos as well.

The stated reason for risking that chaos is job creation.

Republican House Speaker Brian Bosma has taken his arguments to the airwaves in an ad that aired last week in Indianapolis and Fort Wayne. In it, Bosma uses the dour economy and the troubles veterans face finding jobs to argue that Indiana should become the 23rd state to ban businesses and private unions from negotiating contracts that mandate workers to pay labor fees.

Indiana's unemployment rate crept up to 9 percent in October, up from 8.9 percent the month before. The national rate dropped from 9.1 percent to 9 percent over that same period. These are the numbers most folks are used to hearing when reading official tallies of the struggling economy.

But the official unemployment rate only tracks people actively seeking work. House Minority Leader Patrick Bauer, D-South Bend, and others say it's flawed because it excludes people who have either stopped looking for work or are only working part-time.

The Bureau of Labor Statistics actually produces a range of estimates. The range runs from a very strict definition of who is looking for work to a looser definition of joblessness that includes people who want full-time work but are only working part-time. Not surprisingly, the broader the definition, the worse things look.

The broadest definition, which includes the so-called underemployed and anyone no longer seeking work, was 15.6 percent of the national labor pool in November. The most recent numbers for Indiana put the state at 15.9 percent through the second quarter of 2011.

So which number gets the nod — the more conservative, official unemployment rate or the broader definition?

The whole "How do you define unemployment?" debate is as old as the figure itself, said Steve Haugen, economist with the BLS division of labor force statistics.

After the Great Depression, lawmakers looking for a reliable and consistent measure of the nation's joblessness pondered whether desire to work should be considered or if measurements should focus only on what people are actually doing, he said.

Since then, presidential commissions have parsed and tweaked the official unemployment rate, but it has remained largely the same. What has changed is the introduction of new measures like the broader definition.

The larger number, which includes workers in part-time jobs who want to work full time, actually follows the same valleys and peaks as the official unemployment rate, Haugen said. So as a measure, the unemployment rate still shows where the national jobs situation is, where it's going and what it's done in the past.

Jerry Conover, director of the Indiana Business Research Center at Indiana University's Kelley School of Business, said each measure shows a different dynamic in the ailing economy.

"I would say maybe looking at the (unemployment rate) is a better measure of the degree of pain in the labor force," Conover said. "It can change not because there are more or fewer unemployed, but because the number of people out there looking for work changes."

"In that sense, the standard doesn't fully reflect the extent of people who want to work," he said. "If they're not looking, they don't count in that figure. That's why you have those additional measures."

The question now for Indiana's political leaders is which numbers they want to use in the upcoming debate.

Daniels says the state's month-to-month job numbers might not give a specific picture, but they give an accurate idea.

"We used to say in business when we admitted we didn't really know for sure (about) something, it is directionally correct. I think they're directionally correct," Daniels said.

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