President-elect Donald Trump has made no secret of his feelings about the unemployment statistics produced by the federal government’s Bureau of Labor Statistics. He’s called the headline unemployment rate “one of the biggest hoaxes in modern American politics” and has suggested that the “real” unemployment rate might be over 40 percent.
Now, with the announcement that Andy Puzder, the CEO of CKE Restaurants, which operates the Carl’s Jr. and Hardee’s fast food chains, is his nominee to run the Labor Department, Trump will have a fellow foe of the unemployment rate in charge of the agency that houses BLS itself.
Trump’s complaints about the unemployment numbers have been hyperbolic and have on several occasions insinuated that the numbers are part of an active attempt to deceive the public about the real state of the economy.
Early this year, when the jobless rate was at 5.3 percent (it is now at 4.6 percent), he said, “The number isn't reflective. I've seen numbers of 24 percent -- I actually saw a number of 42 percent unemployment. Forty-two percent.” He added, "5.3 percent unemployment -- that is the biggest joke there is in this country. The unemployment rate is probably 20 percent, but I will tell you, you have some great economists that will tell you it's a 30, 32. And the highest I've heard so far is 42 percent.”
Puzder, an attorney by training, doesn’t appear to have bought into the Trumpian idea that the monthly job reports from BLS are part of some sort of cynical disinformation campaign. He just thinks they are a bad metric for assessing the country’s economic health, and has said we should “stop using it.”
Writing in Human Events in 2012, Puzder argued, “[I]f you are trying to measure whether our economy is creating jobs, the unemployment rate alone is a poor indicator. It is the underlying numbers that reveal the real state of the economy and job creation.”
The numbers reported by BLS, he said, were masking the real truth about the U.S. economy, specifically that “we are in a continuing economic decline.”
Puzder and his co-author, Michael Talent, argued in the National Review in 2013 that the most widely reported version of the BLS unemployment rate (the agency issues several) is misleading because it uses a very restrictive definition of the who is considered a participant in the labor force. By only including people working and those who have actively sought work in the past 30 days, they write, BLS makes the denominator in the employment-to-labor force ratio artificially low, thereby lowering the unemployment rate as well.
The BLS is not trying to mislead the public; it has used the same basic formula for decades,” they write. “But some things have changed: The participation rate’s volatility has historically been very limited. In the 21 years from January 1988 through January 2009 (the month President Obama assumed office), the participation rate increased from 65.8 percent to 66.2 percent, only 0.4 percentage points. The peak was 67.3 percent, only 1.5 points above the trough of 65.8 percent.
During the last four years, the participation rate has declined from 66.2 percent to 63.3 percent, nearly double the change we experienced over the prior 20 years. This volatility has rendered the official unemployment rate unreliable and misleading.
Puzder and Talent argue for a different way of assessing the economy’s production of jobs:
A more realistic and informative metric would be what we call the “growth ratio” — the year-over-year growth in the number of jobs (measured through the BLS’s household survey) divided by the year-over-year growth in the civilian non-institutional population (the number of people who could be in the labor force). This fraction tells us whether job creation is keeping pace with, running ahead of, or falling behind population growth.
But labor economists say that Puzder’s criticism of the BLS unemployment rate is misguided for several reasons and that his “growth ratio” formula has serious limitations of its own.
“There’s a lot of problems with it,” said economist Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities. “If he wants to look at it, I won’t stop him. But it certainly won’t give you much of a bead on how labor demand is changing month-to-month, as the unemployment rate does.”
The unemployment rate reported by the BLS every month -- the one that gets into the headlines, at least -- is designed to do one pretty specific thing: to tell economists what percentage of the people looking for work right now are unsuccessful. That’s why the definition of labor force participation is restrictive.
However, in the same report, BLS provides multiple other measurements of the unemployment rate that include broader and broader definitions of the labor force, and which result in higher and higher rates of unemployment.
The broadest measure, known as the “U-6” measures “total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.” (For the record, not even the U-6 comes within shouting distance of Trump’s 42 percent.)
And the same table that contains the headline unemployment number every month also contains a metric that is, in effect, a static version of Puzder’s growth ratio. It’s called the “employment-to-population ratio.”
Bernstein said that in his criticism, Puzder is “getting at something germane, which is that there are people left out of the unemployment rate who we have to factor in when we’re considering the extent of labor market slack. But you can get there by simply looking at the employment rate.”
And when it comes to Puzder’s suggestion that the unemployment rate be scrapped entirely, Bernstein is more than a little dubious.
“We get the data we need to accurately assess labor market slack every month,” he said. “I certainly wouldn’t replace the unemployment rate -- it’s telling us something important, and it’s been consistently measured for generations -- but I would supplement it with other measures in the report. But those numbers are already there.”
Of course, if Puzder is successfully confirmed, it will be his opinion, not that of labor economists, that carries the day within the Labor Department. However, his road to confirmation will be anything but smooth, not because of his stance on how to assess the true level of unemployment in the country, but because of his own company’s repeated violations of federal labor law.
CKE has been fined millions of dollars for failing to comply with worker protection laws. Puzder is also a vigorous opponent of proposals to increase the minimum wage, and has spoken longingly about being about to replace human fast food workers with robots.
In fact, earlier this year, the man Trump wants to put in charge of advocating for the American worker talked up the benefits of robots in an interview with Business Insider, listing various reasons why they are preferable to humans: “They’re always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall, or an age, sex or race discrimination case.”
That’s a line more likely to arise in a confirmation hearing than any argument about unemployment metrics.