Evaluating Employment Data
Nonlinear non-monotonic oversights
In America we tend to interpret numbers from a linear monotonic mindset
- in simple terms we think "more is better." But in nature nothing
really works that way, same in the economy. More is not always better.
Both beneficial and harmful forces can push common measures in either
direction. Here, we will look at how both employment and unemployment
fail to be reliable linear (monotonic) measures of our economy.
Draft: Dec 2012
Part 1 Employment:
On the surface increased employment would appear to be a good thing. We
all need opportunity and employment is the primary, but not solitary,
measure of opportunity. But let's look deeper what forces can increase
- Increased opportunity - If more possibilities are created more jobs
will exist for people to take. This is what we assume we are measuring
when we hear employment reports.
- Increased population - A rising population creates more people needing
jobs and more tasks serving people that need to be done. Rising population
can lead to rising gross employment without creating an actual rise
in opportunity, quality of life, or even drop in unemployment.
- Decreased community - When real community decreases more people need
employment and will seek employment. The obvious example of this is
the divorce of a traditional family. The housekeeper needs to enter
the workforce to support a separate household.
- Increased desperation - When extended recession persists people start
taking any job out of desperation. This is not a measure of increased
opportunity it is a measure of decreased hope.
Clearly, negative factors can drive employment up. Conversely, not all
the factors that drive employment down are negative.
- Decreased opportunity - Declining opportunity will drive employment
down. This is obvious during a recession or factory shutdown.
- Increased security - When families feel secure and have enough funds
a member of the family may delay searching for new employment. This
drop in total employment would actually indicate an increase in the
quality of life.
- Increased community and family support -If an individualistic society
switches their mindset to a more communal mindset (e.g.: young men quit
playing around then settle down and get married then their wives become
housekeepers) total employment may decline. Again, this drop in employment
may actually indicate an increase in the quality of life.
We see some of this play out with families. Before children both parents
work. During the children's early years one parent stays home. When the
children are old enough the homemaker may return to work. The choice to
return to work may be driven by opportunity (good economy) or need (stagnating
wages for the primary breadwinner.) The fluctuation in the numbers fails
to indicate real qualitative changes in the economy.
Part 2: Unemployment
As a result, we might guess that unemployment reports are a better measure.
But again, multiple factors make the unemployment relationships nonlinear.
Both positive and negative factors can push the measure either up or down.
- Jobs lost - Unemployment goes up when many jobs are lost.
- Rapid population change - Unemployment also rises when a rapid influx
of new workers (e.g.: teenagers) enter the workforce.
- Increased security - Unemployment may also rise when potential workers
feel secure enough to wait out low quality job offers for a better offer.
- Jobs found - Increased employment can reduce the unemployment rate.
We initially assume that this is what we are measuring.
- Hopelessness - When people lose hope and give up trying they cease
to be listed as unemployed. Unemployment drops without employment actually
- Rapid retirement - If a large number of elderly qualify for retirement
benefits during a recession the unemployment rate may drop as that cohort
chooses retirement over employment.
So neither employment nor unemployment constitutes a reliable monotonic
indicator of how things really are. Changes in either direction fail to
indicate on their own declines or improvements in the economy.
Linear relationship: an increase in one unit of one variable
always results in the same increase in a dependent variable.
monotonic relationship: an increase in one variable always
results in an increase in the other
non-monotonic: an increase in one variable may result in
either an rise or drop in the dependent variable
Related pages at this site
of 2012 provided us an interesting example of this when Ann Romney
spoke about how they didn't have to work as a young couple because
they were living off of inheritance. Had they been from middle class
or poor families they would not have had the security to wait for
a better opportunity.
|| Part 3: The Historical Measures
|Current growth in total jobs is at the level projected
from the 20 year trend.
|The current annual growth rate is at
the level projected by the 35 year trend.
|Jobs as a percent of population is stable after the
combined declines 2001-2002 and 2007 - 2009. This level is still about
the level seen during the boom economy of the late 1960s - early 1970s.
We see a high growth rate from the early 1960s through the early 1980s.
But even with this high growth the jobs to population ratio is about the
same in 1982 as it was in 1966. Most of this growth represents the baby
boom entering the job market.
After roughly 1980 we see a rapid rise in the employment to population
ratio. This era was characterized by a few negatives that could lead to
employment growth. During this time America saw the collapse of its industrial
base - many good paying labor jobs disappeared. As a result two incomes
became necessary to maintain the same standard of living previously gained
by workers with just one income. The share of GDP going to workers declined.
Divorce increased rapidly and community support systems collapsed rapidly.
Philosophies of materialism and status replaced community and family -
leading to the creation of the term "yuppie." Many people attempting
to gain status worked longer and harder and spent significantly less time
with family. For many, this growth in employ actually correlated to a
drop in quality of life.
Since the peak in 1977 annual growth has been steadily declining. Since
the peak in 2000 the employment to population ratio has been declining.
It is not clear what caused these trends. They correlate to lower taxes
on the rich and a higher share of the wealth going to the top 1%.
Short term trend notes
- 1967 down: oil embargo
- 1973 down: oil
- 1979-1980 down: oil
- 1989-1991 down: tax cuts & war drives up
- 2000 -2001 down: dot com bubble bursts, tax
cuts, fear & war
- 2003 - 2008 up: investment bubble & oil
prices rise exponentially
- 2008-2009 down: bubble burst
Employment, like all other real measures, does not directly correlate
to quality of life. The relationship, at best, is not only non-linear
it is non-monotonic. A rise in employment could indicate either a general
rise in quality of life or a drop. We cannot tell for sure without checking
Job vs. work: Americans work very much, so we must distinguish
between a job and work. Consider a traditional extended family with two
matriarchs taking care of the family and one breadwinner. A lot of work
is being done, but only one job exists. Now, consider a two income family
with children in daycare who eat out frequently because they don't have
time to cook. In this case 3 or 4 jobs exist even while the amount of
work being done is about the same. Americans also do massive amounts of
uncompensated work - the obvious example being websites such as this.
The number of jobs fails to measure either quality of life or actual work