Gallup CEO on US 5.6% Unemployment Statistics: It’s a Big Lie!

Here is a commentary by one the CEO of the major US pollsters, Gallup, who pushes back strongly on the accuracy of US government statistics. 

Here is Gallup CEO Jim Clifton’s post (or sourced) at the LinkedIn (pointer to Zero Hedge) [bold mine]

Here’s something that many Americans -- including some of the smartest and most educated among us -- don’t know: The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading.

Right now, we’re hearing much celebrating from the media, the White House and Wall Street about how unemployment is “down” to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.

None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job -- if you are so hopelessly out of work that you’ve stopped looking over the past four weeks -- the Department of Labor doesn’t count you as unemployed. That’s right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news -- currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren’t throwing parties to toast “falling” unemployment.

There’s another reason why the official rate is misleading. Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 -- maybe someone pays you to mow their lawn -- you’re not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.

Yet another figure of importance that doesn’t get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find -- in other words, you are severely underemployed -- the government doesn’t count you in the 5.6%. Few Americans know this.

There’s no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.

And it’s a lie that has consequences, because the great American dream is to have a good job, and in recent years, America has failed to deliver that dream more than it has at any time in recent memory. A good job is an individual’s primary identity, their very self-worth, their dignity -- it establishes the relationship they have with their friends, community and country. When we fail to deliver a good job that fits a citizen’s talents, training and experience, we are failing the great American dream.

Gallup defines a good job as 30+ hours per week for an organization that provides a regular paycheck. Right now, the U.S. is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America’s middle class.

I hear all the time that “unemployment is greatly reduced, but the people aren’t feeling it.” When the media, talking heads, the White House and Wall Street start reporting the truth -- the percent of Americans in good jobs; jobs that are full time and real -- then we will quit wondering why Americans aren’t “feeling” something that doesn’t remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class.

***

Jim Clifton is Chairman and CEO of Gallup. He is author of The Coming Jobs War(Gallup Press, 2011).

This is another great example of how “politicians use statistics in the same way that a drunk uses lamp-posts—for support rather than illumination” as warned by Scottish novelist Andrew Lang.

Anyway, welcome to the government statistics skeptic club, Mr. Clifton.

Video: Ludwig von Mises on "Are Workers In Conflict with Employers?"

When asked to respond on the issue “Are the interests of the American wage earners in conflict with those of their employers, or are the two in agreement?" 

Here is the reply of the great Austrian economist Ludwig von Mises (via Mises Blog)

Video: Myth of the Rational Voter: Make Progress, Not Work

Econolog economist, professor and blogger Bryan Caplan explains why free markets (and not labor protectionism) leads to progress

From Learn Liberty: 

As technological developments increased farm yields over the last two centuries, the share of the US population employed in agriculture fell from around 90 percent to around 2 percent. The lay American public supposes that when workers lose their jobs, we become worse off — they suffer from what economist Bryan Caplan calls the 'make-work' bias. But would anyone prefer to live in a society in which many went hungry and no one enjoyed the wealth, financial security, job growth, and innovation created as all those workers lost their farm jobs? Follow Caplan, author of The Myth of the Rational Voter, as he explains the gap between the public's opinion and the economist's facts. In this video, Caplan talks about the merits and demerits of 'making work' - instead of letting individuals find work. 

► Learn More: 

-Frederic Bastiat contends that to aim to increase the proportion of effort to output is to imitate Sisyphus in his hopeless attempt to move a stone up a hill: http://mises.org/daily/6157/Industry-... 

-Daniel J. Mitchell explains the fallacy that government creates jobs: http://www.cato.org/publications/comm...

Quote of the Day: Robots should say a prayer to central bankers

Slaves – human or robotic – are a form of capital. After the cost of maintenance, the profits from their work go to their owners.

Wolf does not mention it, but the robots should say a prayer to central bankers. By reducing interest rates, they also reduce the cost of capital.

At zero rate of interest, for example, the real cost of a robot is zero. And if that robot can replace an average, marginally competent employee with a bad attitude, the employer makes a profit of $42,000 (or whatever he would have paid the human)… not counting health insurance and the parking place.

The lower the cost of capital, the more robots take their place in the labor force… and the more labor costs drop.

This is an excerpt from Agora Publishing’s Bill Bonner (published at Bonner & Partners) who takes a swipe at the neo-luddites. This shows just how blind the mainstream have been to the theory of capital to embrace age old discredited fallacies

How Inflationism Spurred Singapore’s Labor Protectionism

In August of 2012, I wrote about Singapore’s “gradual descent into the welfare state” as politicians divert the public’s attention by blaming symptoms of bubbles (zooming property prices and wage inflation) on immigrants to justify increased taxes for social spending.

Singapore’s homegrown bubbles as seen via record home prices (as of August) has been fueled by massive credit expansion or the zooming loans to the private sector.

This has been enabled and facilitated by the central bank’s accrued efforts to suppress the domestic currency, the Singaporean Dollar, from rising by accumulating enormous foreign exchange reserves by printing lots of domestic currency, thereby the easy money environment.  And due to such exchange rate management measures, the Monetary Authority of Singapore (MAS) even posted a $10.2 loss last year.

These bubble activities by the MAS have only amplified on the growing nationalism where this year the ruling party lost due to increasing populist clamor for immigration curbs.

Singapore’s housing index has already surpassed the pre-Asian crisis highs. This shows why the recent “FED taper” turmoil in May-June materially affected Singapore’s financial markets.

Now to Singapore’s labor protectionism, from Bloomberg:

Singapore will widen foreign-worker curbs to professional jobs as the government clamps down on companies that hire overseas talent at the expense of citizens, stepping up efforts to counter a backlash against immigration.

The Southeast Asian nation said yesterday it will set up a job bank where companies are required to advertise positions to Singaporeans before applying for so-called employment passes for foreign professionals. The unprecedented policy will target jobs that currently pay at least S$3,000 ($2,400) a month.

“There are concerns among Singaporeans, which I think is fair, and so it’s timely for us to introduce this,” Acting Manpower Minister Tan Chuan-Jin said in a Bloomberg Television interview yesterday. “There are Singaporeans out there, well-skilled and capable, who are looking for jobs and I think this step would actually facilitate that process.”

The country is persisting with a four-year campaign to reduce its reliance on foreign workers, after years of open immigration policy led to voter discontent over increased competition for housing, jobs and education. The move has led to a labor shortage and pushed up wages, prompting some companies to seek cheaper locations…

Singapore will also raise the minimum pay for employment-pass holders by 10 percent to S$3,300 a month in January, the Ministry of Manpower said in a statement yesterday. The job bank will be set up by mid-2014, it said. Companies with 25 or fewer employees will be exempt from the new rules, as well as jobs that pay a fixed monthly salary of S$12,000 or more, the ministry said.

Singapore’s declining economic freedom and the rise of economic nationalism as a consequence of the global and Singapore’s easy money regime is a sad development especially that I have regards for the country. 

Yet one thing leads to another. Since property bubbles and wage inflation are symptoms, policies that address symptoms means the disease won’t be cured. And once the labor-immigration controls fail to stem her bubbles and the perceived political inequalities, the government of Singapore will resort to even more controls or interventions in other areas (perhaps capital and exchange controls, trade, social mobility as the above, deeper wage and labor controls and more), that would mean lesser prosperity for Singaporeans.

And growing politicization of an economy will lead to more social tensions as various parties compete to use government ‘coercive’ machinery as means to promote their self-interests through the repression of the interests of the others. So as economic freedom declines, economic fascism and or cronyism increases.

Inflationism and social controls or political economic interventionism have always been intertwined. As the great Austrian economist Ludwig von Mises warned (On The Manipulation of Money and Credit)

Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism

How Regulations Deter Investments: The China-Europe Story

Many Chinese firms including State Owned Enterprises (SoE) have been considering to invest in Europe as the latter eyes $560 billion of Chinese FDIs in 5 years.

Unfortunately regulatory barriers have been a huge turn off

From Reuters:

But getting your head around European laws and visa restrictions, as well as the fear that tough economic times could spark more political instability, make Europe hard to navigate for Chinese firms.

In fact the surveyed firms perceive Africa and the Middle East as having a more favourable business environment than the EU.

Chinese firms find EU law particularly troublesome because there is no unified inbound investment approval process and some member states have their own security reviews…

Six in 10 of the firms surveyed were SOEs and the most popular EU country for Chinese investment was Germany, with France a distant second.

Chinese firms asked for more support with the operational issues they face from policymakers in Europe and back home.

Regulatory obstacles can also signify as forms of disguised protectionism via technical barriers to trade as product or safety standards as well as people protectionism which limits flow of people.

The European crisis will hardly be resolved until real reforms to promote a business friendly environment or by the liberalization of the economy.

Also the above also reflects on the Africa’s ‘globalization’ boom story which has been attracting lots of Chinese investments. Chinese FDI reportedly zoomed to $14.7 billion in 2012 up by 60% from 2009 (ChinaUSfocus.com)

Sri Lanka’s Government to Ban Maid Exports

Here is an example of a knee jerk political reaction on what has been a lurid but seemingly isolated development. 

Writes the AFP (bold mine)

Sri Lanka said on Thursday it would bar women of all ages from travelling abroad to work in menial jobs, following an international outcry over the beheading of a young nanny in Saudi Arabia.

Information Minister Keheliya Rambukwella announced that women under 25 were now banned from going to the Arab state to work as maids, adding that it was the first step towards a worldwide travel ban for low-paying jobs. 

The move was in response to the execution earlier this month at a prison in Riyadh of Sri Lankan maid Rizana Nafik, who was only 17 when she was charged with smothering a four-month-old baby in Saudi Arabia in 2005.

"As a first step we are raising the age limit to 25. We will gradually move towards a total ban on our women going abroad to do low-paying jobs," Rambukwella told reporters.

An infraction committed by a single person has been used as justification to ban the entire female OFW deployment. This policy has been premised on plain fallacy of composition.

People go abroad for work because of their perceived cost-benefit trade off. Despite the various forms of risks (away from the family, potential relationship problems with employer, risks from cultural conflicts, risks of failing to adapt with regulations of the employing country, political instability and etc…) which they are willing to endure, OFWs look for employment (income), if not, better economic opportunities. 

Through ‘boil the frog slowly’ policies, the Sri Lankan minister would like to see ‘maids’ starve at home instead.  

[This seems to be logic of Sri Lankan policy: prohibition of OFW deployment eliminates such controversies. Unfortunately economic deprivation is likely to incite more domestic violence]

 

The minister’s pretentious adaption of paternalistic supposedly moral high ground policies will likely wilt in the face of economic reality: remittances accounted for 47% of foreign exchange earnings, according to the Sri Lanka 2009 Bureau of Foreign employment

In addition, the female share of OFW deployment accounts for 51.73%, which has more than doubled from 24% in 1986-87. 

Sri Lanka’s slippery slope of OFW prohibition will only exacerbate her already fragile current account conditions, which shows of the Sri Lankan governments’ desperate need of foreign exchange. 

Such pressure are presently being ventilated on a depreciating Sri Lankan rupee vis-à-vis US dollar (charts above all from tradingeconomics.com)

Bans only create black markets too

The Philippines should be an example.

The ban on Philippine OFW deployment in Afghanistan has been partially lifted in 2011. In reality, such ban failed to curb the incidences of backdoor flows of Filipino OFWs into Afghanistan. By lifting the ban, the administration tried to grab credit via PR stunt on what has truly been a policy failure—essentially political objectives has not been attained. The Philippines still maintains an OFW ban on 19 countries.

So we should expect maid exports from Sri Lanka to become a backdoor or informal economy phenomenon.

Also, discrimination against particular countries on what signifies as labor (trade) relations risks retaliation in different forms. Protectionism fuels geopolitical enmities.

Bottom line: a ban on OFW deployment equates to economic hara kiri for Sri Lanka, or that Sri Lanka’s government will have reverse to her impulse based policies soon.

Video: How Occupational Licensing Hurts the Economy

This video from the Institute for Justice shows how occupational licensing, or restrictive employment regulations, represents a form of labor protectionism that hurts the consumers, investors and job seekers, or as a whole, the economy. Yet the beneficiaries are the small number of privileged license holders and the government of course.

While the video has been focused on occupational licensing in the US, labor market interventions has universal relevance. In short, this applies to the Philippines too.

More Signs of Decentralization: Europe Eyes Liberalization of Professions

Speaking of centralized forces giving way to decentralization, here is another very important development—parts of Europe now plans to liberalize professions

This from Bloomberg,

While Greece started lifting the legal shield for more than 150 jobs two months ago, Italy retains restrictions on who can enter professions. Prime Minister Silvio Berlusconi plans to strip away the protection as he tries to avert a debt crisis by revitalizing an economy that’s trailed the average growth rate for the euro region since its formation.

Fostering competition across the economy would boost growth by as much as 1.8 percentage points a year, according to Antonio Catricala, head of the country’s Antitrust Authority. That includes protected groups such as pharmacists, notaries, accountants and taxi drivers.

“A liberalization of professions and more in general of the whole economy may lead to additional growth,” Catricala said in a telephone interview. More competition would “have a positive impact on employment,” as joblessness among young people is about 30 percent, he said...

The parliament in Rome will vote as early as next week on a plan passed by Berlusconi’s cabinet on Aug. 12 that commits lawmakers to liberalizing the professions within a year. Some barriers, such as compulsory membership of professional groups and tests to join, would require changes to the constitution.

Important changes have been happening at the margins. Such transition would not be smooth though, as many entrenched forces will fight to preserve the status quo.

Why Global Labor Unions Have Been On A Decline

Labor unions have been on a declining trend, not just locally but internationally.

Trade or Labor Unions, according to the Wikipedia, is “organisation of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members (rank and file members) and negotiates labour contracts (collective bargaining) with employers. This may include the negotiation of wages, work rules, complaint procedures, rules governing hiring, firing and promotion of workers, benefits, workplace safety and policies. The agreements negotiated by the union leaders are binding on the rank and file members and the employer and in some cases on other non-member workers.”

Labor unions, for me, function as political force, which uses government laws for extracting economic privileges, at the expense of the company owners, non-labor union workers and taxpayers indirectly (such as the GM bailout) or directly (government unions).

The main goal of the labor union is to restrict manpower supply and to raise wages and benefits above market levels. And in doing so, labor unions add to the imbalances in the labor markets, which results to higher unemployment levels and the lack of competitiveness among many others.

For public unions the desire is for more taxpayer funded privileges.

In other words, labor unions thrive on a non-competitive environment.

As shown in the above (interactive) chart by the New York Times, since the 1980s labor or trade union around the world has seen a sharp decline except for a few, e.g. Iceland.

The main reason: rising international competitiveness or globalization.

Cato’s Dan Griswold explains (bold highlights mine)

Economic theory offers a number of reasons why growing international competition would be damaging to the interests of labor unions. More competition in product markets means greater elasticity of demand for labor—that is, global competition means that demand for labor is more sensitive to any change in wages.

Employers competing in global markets cannot simply pass higher wage costs along to consumers in the form of higher prices because consumers themselves can choose to buy substitute products from lower-cost, often nonunionized producers.

Expanding capital mobility means that employers are more able to shift production to lower-wage countries if necessary. A more mobile company is better able to threaten or employ an “exit” option in response to union demands. In the face of product competition and capital mobility, union demands for higher wages can lead instead to fewer domestic union jobs, as has been the case in a number of firms and industries.

In contrast, in markets insulated from robust competition, unions can more readily demand a share of a company’s or industry’s profits without fear of compromising the survival or competitiveness of the employer. Insulated markets create rents in the form of abovemarket profits that unions can then bargain with management to divide between them at the expense of the consuming public.

In short, the more a country is open to trade, the bigger likelihood of the diminished role of labor unions.

There are other non trade factors are involved too.

They include, adds Mr. Griswold, more rapid growth of certain categories of workers, such as women, southerners, and white-collar workers, who are less favourable to unionization; the deregulation of transportation industries; declining efforts of unions to organize new members; government activity that substitutes for union services, such as unemployment insurance, industrial accident insurance, leave policies, and other workplace regulations; the decline in pro-union attitudes among workers; and increased resistance among employers

For me, another very critical factor second to globalization has been the ongoing transition from industrial era to the information age.

Labor unions had basically been tailored for vertical organizational structures. But times are changing. As technology (via the web) becomes more entrenched, the nature of work has gradually been reconfiguring. And this provides lesser opportunity for unionization to take place, aside from the financial incentive or viability to maintain one.

As Alvin Toffler writes in Revolutionary Wealth,

Work is increasingly mobile, taking place on airplanes, in cars, at hotels and restaurants. Instead of staying in one organization, with the same co-workers for years, individuals are moving from project team to task force and work group continually losing and gaining teammates. Many are ‘free agents’ on contract, rather than employees as such. Yet while corporations are changing at a hundred miles per hour, American unions remain frozen in amber, saddle with the legacy organizations, methods and models left over from the 1930s and the mass production era.

In other words, digitalization, automation, robotics and other technology enhancements which raises productivity are taking many people out of the industrial era work. The more outsourcing and specialization takes place the lesser role played by the labor unions.

Investing guru Doug Casey also sees the same,

The good news, however, is that coercive unions are on the way out. They're anachronisms. They're leftovers from the time when people were like interchangeable parts in the giant factories they worked in. People were so replaceable that one person was little better or worse than another – because they were basically biological robots. In the early industrial era, labor was in over-supply, society was poor, and conditions were harsh everywhere. It's understandable why workers felt they had to band together for self-protection. But the industrial era is gone. The assembly line with thousands of workers is totally outmoded. In the global information age, trying to extort high wages for manual labor is pointless. Soon robots will be doing almost everything, then nanomachines will replace the robots. People will only be doing work that requires thought, judgment, and individuality. Those aren't things that can be unionized.

It pays to look at the big picture.

Labor union trends worldwide have not been declining because of culture or politics, but because of economics.