What if the unemployment rate is the wrong measure?
The U.S. economy added 243,000 jobs in January 2012, and the unemployment rate dropped from 8.5 percent to 8.3 percent.
That’s huge, and everyone should be excited regardless of their political affiliation. This is the type of employment gain that solidifies the economic recovery.
But, what if the right number turns out to be the wrong measure?
Economist John R. Lott, quoted in a Baltimore Sun opinion piece that ran on February 11, 2012, noted that while the unemployment rate had indeed dropped, the number of unemployed had risen from 11.6 million in January 2009 to 12.8 million in January 2012. Additionally, 43 percent of the unemployed had been out of work for six months or more compared to 29 percent in January 2009.
Need more confusion? Outsourcing firm Challenger, Gray & Christmas announced that layoffs in January 2012 were up 28 percent from December 2011 and 39 percent from January 2011.
So is the job situation getting better or worse? The answer to both is, “Yes.”
The unemployment rate is affected by two numbers: those working and those who have dropped out of the workforce. In other words, the unemployment rate can show improvement when people give up on finding a job. And, about 1.2 million have done just that.
Are we witnessing a seismic shift?
Supporters of President Obama are inclined to read this as “gotcha” politics. Opponents are equally inclined to view it as further proof that President Obama can’t be trusted.
Both are missing the point. Presidents have historically used the unemployment rate as an indicator of economic health. They take credit when it improves and blame when it gets worse.
History tells us that a drop in the unemployment rate translates to an increase in people working. But, what if we are seeing a fundamental shift in how the economy works? More important, what if we are witnessing a shift in how society views their opportunity for work?
What this means for you
As a teenager, I worked as the statistician for the local sports editor covering high school football games. I kept track of the number of first downs, penalties, yards gained, fumbles, interceptions, and any other piece of information that might be interesting to know.
Most games, you could look at the statistics and tell who won. Twenty first downs are better than four. Three hundred yards gained is better than fifty.
But not always. Sometimes a team could dominate the statistics and still lose the game.
You can have the right number and still be focused on the wrong measure. The United States can win the battle to lower the unemployment rate and lose the total employment game.
Sales can be up, and your company can still go out of business because you focused on the wrong measure. Your weight may be perfect, but you can still die because you forgot to keep track of your cholesterol.
Managers keep score based on the game they believe they are playing. Leaders constantly scan the horizon to make sure they are playing the right game.
The difference in those two perspectives keep you focused on the results that matter.