We Did Not “Lose” 1.2 Million People (Updated)

UPDATE: Nate Silver pointed me to the BLS extrapolation of their population adjustment data (Table C at the bottom of this release). Long story short: the 1.2 million change in “Not in the Labor Force” is due entirely to the population adjustment and is not (as I assumed when writing this post) a straight across-the-board proportional increase. From December-January, we actually saw a “Not in the Labor Force” decrease which would mean people returning to the workforce. This is awesome. I’ll leave this post here as a testament to my own ignorance.

BLS data came out today and, if you follow me on Twitter, you’ll know that’s kind of “my thing”. I tried to explain this in tweet form, but it requires a bigger canvas.

There was some noise made today that we say “1.2 million people drop out of the workforce”. Zero Hedge and Iowahawk, both of whom are usually really good with numbers, made this claim.

And I want to explain why that isn’t so.

First, let’s look at where that number comes from. In the BLS Employment tables, there is a stat called “Not In The Work Force”. That number rose from 86.7 million in December 2011 to 87.9 million in January 2012, a rise of 1.2 million in one month.

Usually, when I talk about “people dropping out of the labor force”, I’m talking about the actual stat “Civilian Labor Force Level” decreasing as a raw number. This isn’t what happened. In fact, the Labor Force jumped half a million between December and January (the third biggest jump since the recession began).

So… the labor force rose dramatically, but “not in the labor force” also rose dramatically. Why is that?

The answer lies in the population. Normally population increases are a super-boring statistic in the job report. They always go up about the same amount, 150K-200K per month. However, the BLS does an annual adjustment every January. The last two adjustments have been downward, but this January, the adjustment was a huge upward one.


That’s a population adjustment of 1.7 million people. That’s big. In fact, that’s second biggest population adjustment in BLS data ever.

So when the population is adjusted, everything else in the data set gets adjusted too. The Labor Force goes up, Employment goes up, and the Not in the Labor Force goes up.

Now, the concerning thing about this adjustment, and the only mote in an otherwise spotless jobs report, is the distribution of this adjustment. We have a labor force participation rate of 63.7% (which is very, very low). If we add a hundred people, ideally we’d like to see at least 64 of them added join the workforce (to keep that participation rate up). We want to see the labor force grow at least on the level of the population.

Instead, what we got was this:

The BLS added 1.6 million people to the population number but only 30% of those were added to the Labor Force. That’s upside down from what we should expect in a normal adjustment.

Now… what does this mean?

Here is my theory based on how I understand the stats work.

At the end of 2011, the BLS re-calculates their population numbers and says “Whoa… we’ve way undercounted the population, so let’s adjust that number.” They adjust that number up and all the other numbers with it go up too. So what happened was that the “Not in the labor force” count did go up, but the population adjustment amplified the increase. And the Labor Force probably went down, but the population adjustment made it look like it’s going up.

I did some rough calculations (adjusting the December population upwards so that it more closely matches the January population) and, if we smooth the population adjustment, the jobs report looks less rosy. It looks like we lost another 450K from the labor force, which accounts for nearly all of the drop in unemployment.

The complicated nature of these numbers means that this observation won’t get very much traction (and, honestly, I’m not 100% convinced I’ve accounted for everything so maybe it shouldn’t) but it fits into the overall observation that employment increases are just not keeping up with population increases. I wouldn’t say this is alarming, but it is concerning.

7 comments

  1. Mark says:

    Not in the labor force

    This category includes retired persons, students, those taking care of children or other family members, and others who are neither working nor seeking work. Information is collected on their desire for and availability for work, job search activity in the prior year, and reasons for not currently searching. See also Labor force and

  2. Valerio Luccio says:

    First, it should’ve been obvious from the beginning that the increase of 1.2 million in discouraged workers had nothing to do with the drop in the unemployment rate. Given a total working population of 155 million, 1.255 million represents roughly 0.8% and, since discouraged workers come from the pool of the unemployed, that alone should have dropped the unemployment rate by roughly 0.7%. When you add in the number of jobs created, the unemployment rate would have dropped from 8.5% to 7.6% … absurd.

    Second, in the BLS report, after the numbers for the adjustments, we find this sentence: “Although the total unemployment rate was unaffected, the labor force participation rate and the employment-population ratio were each reduced by 0.3 percentage point.” So the BLS explicitly stated that these adjustments had nothing to do with the drop in the unemployment rate.

  3. Hutch says:

    I just read something saying they adjusted the unemployment formula again!

    The BLS footnotes say “As a result, household survey data for January 2012 will not be directly comparable with that for December 2011 or earlier periods.”

  4. Why is higher labor force participation better? You accept it as a premise without saying what’s good about.

    In the 1950s and 1960s we had:
    1) MUCH lower labor force participation
    2) MUCH higher economic growth rates.
    3) The ability to support a family on one income.
    4) Less pollution. Less traffic congestion.

    Wouldn’t it be nice if we could all work a little less? If we could afford to own a home and raise a family without having to always have two incomes. If we could have the option to take a “leave of absence” or go back to school or spend more time with our kids. All of these are examples of lower labor force participation. And they are all good things.

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