Arithmetic error

While chatting with a commenter on the previous post, I went back to the Mathematica notebook where I had played with the numbers, and found an error in my arithmetic that is, as they say, “material”. I erroneously used 68%, rather than 67%, as the late 90s participation rate, when I asserted that unemployment would be 8% today if participation returned to previous levels. The correct value is 6.6%.

That is, if an additional 0.8% of the “civilian noninstutional population” became active job seekers, but no net new jobs were created, the reported unemployment rate would be 6.6%. (The numbers, which hopefully I’ve correctly transcribed for a change, are May 2008 data from the June 6 release of BLS employment situation, Table A-1.) That’s still a big jump from 5.5%, but it’s a far cry from 8%, which sounds like a nasty recession.

To say I regret the error would understate the red-faced heart-thumpingness of the thing. Sorry!


3 Responses to “Arithmetic error”

  1. Plus, of course, the “Lump of Labor” fallacy is a fallacy. In a predominantly free market system, that’s reasonably well functioning, wages and prices expand and contract to create more jobs for more people seeking them. As more people search for jobs, the number of jobs will increase, especially over the long run.

  2. Brendan writes:

    This has been the pattern since 2000, many of the biggest one-month changes in the ‘unemployment rate’ have been driven by changes in the participation rate (denominator) and not by changes in the employment rate (numerator) of the equation.

    During the post-tech-bubble downturn and recovery, there were often periods of very slow or negative growth in employment that led to reductions in the ‘unemployment rate’ because participation dropped.

    Even though I love the CPS data and have played with it a lot over the years, the payroll figures and establishment survey is the best source of employment statistics these days.

  3. Richard — Agreed, over the long term or even the medium term. We’ve got a rocky short term ahead of us though… there may well be a period where participation increases at the same time as total employment declines. As a matter of fact it appears there already is one.