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Unemployment is falling?

By , - Last modified: October 12, 2012 at 10:35 AM

Last week's unemployment figures had many people shaking their heads. One report showed a meager 114,000 jobs created over last month, which was not much to get excited about. But later it was announced that our unemployment rate had fallen from 8.1 percent down to 7.8 percent.

That’s much more significant.

But if you do the math, the figures don’t seem to add up. It would require more than 450,000 newly created jobs to lower the unemployment to that level. So how did we do it with just 114,000?

You need to dig a little deeper into the report to get a better understanding of how these numbers are reported to the public.

The Bureau of Labor and Statistics (BLS) uses two separate surveys to create a complete picture of the labor market. They blend the results from the Current Population survey (also know as the household survey) with those from the Current Employment Statistics survey (also known as the Payroll survey).

The Household survey consists of 60,000 households actually being called and questioned about their particular employment circumstances. These figures are then extrapolated to show an average for the country. This report showed a huge gain of 873,000 jobs created.

In contrast, the Payroll survey consists of a monthly sample survey of about 141,000 businesses and government agencies. This report that showed 114,000 jobs created (this was the first report released to the public).

The BLS then combines and averages these two reports to create the actual unemployment figure. This average represents more than enough newly created jobs to lower the unemployment rate to 7.8 percent.

But here are some things to remember: The Payroll survey is an estimate at best and is often revised at a later date. Also, just because we saw so many newly created jobs reported in the Household survey, it does not take into account the level of pay that these jobs are providing. Some of these jobs may represent jobs where workers took employment at significantly reduced income levels than they had previously.

While all job creation is important, for our economy to improve the quality of work and pay must be preserved as well. Without it, spending cannot expand, and without more spending, this recent rally that we have seen in the stock market may not last. In many ways our economy is tied to consumer spending.

The government has spent a lot of money lately in efforts to shore up unemployment. But I believe that in the long run, the best way for our current situation to improve is with a healthy amount of spending from the population as a whole, which will likely require continued growth of jobs that pay a living wage.


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