How many democrats are needed to bias unemployment figures?

I do not consider any possibility that the Current Population Survey conducted by the U.S. Census Bureau for September 2012 is biased by CB or by the BLS, This is not the case. There is another hypothetical way to bias the data. There are around 70000 households surveyed by the CB. These households include approximately 200000 persons (mean household is 2.5 people). All these people (excluding several percent not responding ones) answer a few questions associated with their current status: employed, unemployed or not in the labor force. There current level of civilian labor force is approximately 155,000,00 with 12,000,000 unemployed. These figures are calculated by a projection of 200,000 to 310,000,000 using population controls. In essence, one person represents 1550 people.

How many people are needed to increase the rate of unemployment by 0.1%? The rate of unemployment is calculated as the ratio of the number of unemployed and labor force.   So, 0.1% of unemployment rate with the level of labor force of 155,000,000 corresponds to 155000. Since one person in the CPS represents 1550 people, one needs only 100 people to increase the rate of unemployment by 0.1%. To decrease the rate by 0.3% , only 300 (democrats -Spartans?) are needed.

I do not say that the result for September 2012  is biased. I say that the Current Population Survey procedure is wide-open for manipulations.

7.8% unemployment was predicted in April 2012

In 2006, we developed three individual empirical relationships between the rate of unemployment, u(t), price inflation, p(t), and the change rate of labour force, LF(t), in the United States. We also built a general relationship balancing all three variables simultaneously. Since measurement (including definition) errors in all three variables are independent it may so happen that they cancel each other (destructive interference) and the general relationship might have better statistical properties than the individual ones. For the USA, the best fit model for annual estimates is a follows:

u(t) = p(t-2) + 2.5dLF(t-5)/dtLF(t-5) + 0.0585 (1)

where inflation (CPI) leads unemployment by 2 years and the change in labor force by 5 years. We have already posted on the performance of this model several times.

Here a model with monthly estimates of CPI, u, and labor force is presented. The time lags are the same as in (1) but coefficients are different since we use month to month a year ago rates of growth. We have also allowed for changing inflation coefficient. The best fit models for the period after 1978 are as follows:

u(t) = 0.63p(t-2) + 2.0dLF(t-5)/dtLF(t-5) + 0.07; between 1978 and 2003

u(t) = 0.90p(t-2) + 4.0dLF(t-5)/dtLF(t-5) + 0.30; after 2003

There is a structural break in 2003 which is needed to fit the predictions and observations in Figure 1. Due to strong fluctuations in monthly estimates of labor force and CPI we smoothed the predicted curve with MA(24). The rate of unemployment became more sensitive to the change of inflation and labor force. Alternatively, definitions of all three (or two) variables were revised around 2003, which is the year when new population controls were introduced by the BLS.

All in all, the monthly model predicts the observed rate of unemployment which has recently dropped to 8.3%. We expect the rate to fall further to the level of 7.8% by the end of 2012.



Figure 1. Observed and predicted rate of unemployment in the USA.

Society for the Study of Economic Inequality: working papers

Top 25 Working Papers by Total File Downloads

1 The effects of Fair Trade on marginalised producers: an impact analysis on Kenyan farmers


Leonardo Becchetti and Marco Costantino


2 GDP growth rate and population

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3 Poverty among minorities in the United States: Explaining the racial poverty gap for Blacks and Latinos

Carlos Gradín


4 Inflation, unemployment, labor force change in the USA

Ivan O. Kitov


5 Microsimulation as a Tool for Evaluating Redistribution Policies

François J. Bourguignon and Amedeo Spadaro


6 Theil, Inequality Indices and Decomposition

Frank Alan Cowell


7 Inequality of opportunities vs. inequality of outcomes: Are Western societies all alike?

Arnaud Lefranc, Nicolas Pistolesi and Alain Trannoy


8 The effects of inequality on growth: a survey of the theoretical and empirical literature

Christophe Ehrhart


9 The measurement of gender wage discrimination: The distributional approach revisited

Coral del Rio Otero, Carlos Gradín and Olga Cantó


10 A model for microeconomic and macroeconomic development

Ivan O. Kitov


11 Evolution of the personal income distribution in the USA: High incomes

Ivan O. Kitov


12 Modelling the overall personal income distribution in the USA from 1994 to 2002

Ivan O. Kitov


13 On analysing the world distribution of income

Anthony B. Atkinson and Andrea Brandolini


14 Modeling the evolution of Gini coefficient for personal incomes in the USA between 1947 and 2005

Ivan O. Kitov


15 All types of inequality are not created equal: divergent impacts of inequality on economic growth

Stephanie Seguino


16 The demand for socially responsible products: empirical evidence from a pilot study on fair trade consumers

Leonardo Becchetti and Furio Camillo Rosati


17 Poverty and Time

Walter Bossert, Satya R. Chakravarty and D’Ambrosio, Conchita (Conchita D'Ambrosio)


18 The Household Wealth Distribution in Spain: The Role of Housing and Financial Wealth

Francisco Azpitarte


19 Reconsidering the Environmental Kuznets Curve hypothesis: the trade off between environment and welfare

Nicola Cantore


20 Recent trends in income inequality in Latin America

Leonardo C. Gasparini, Guillermo Cruces and Leopoldo Tornarolli


21 Measuring Bipolarization, Inequality, Welfare and Poverty

Juan Gabriel Rodríguez


22 Modelling the age-dependent personal income distribution in the USA

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23 Multidimensional Poverty Measures from an Information Theory Perspective

Maria Ana Lugo and Esfandiar Maasoumi


23 Inequality Decompositions ?A Reconciliation

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25 Changes in poverty and the stability of income distribution in Argentina: evidence from the 1990s via decompositions

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Japan - my scenario of consumer price fall was too optimistic

I've found a new projection of labor force in Japan between 2010 and 2050. It says that the rate of labor force participation will be decreasing together with the depopulation of Japan. This means that the level of labor force will be falling much faster than it was used in my recent prediction. Considering the multiplication factor of 1.4, the rate of CPI inflation will reach -1% per year on average in 2020. By 2050, it will reach almost 2% per year (1.89%). The overall drop in consumer prices will be more than 2/3 by 2050.  This fall will be accompanied by the decrease in real GDP at a rate of 1% per year and the debt rise to 500% of GDP.

VOX's opened a debate: What’s the use of economics?

VOX has opened a new discussion "What’s the use of economics?"  moderated by Richard Baldwin.


It would be helpful to have opinions from professionals from the hard sciences. We know about the overall opinion of the economic profession - the role of economics has dramatically increased after the crisis [:)]. We  know the opinion of the general public - "failed once again".  But only the approach adopted in the hard sciences can reshape economics in a way appropriate for the safe usage by the society. Currently, economics is irrelevant what makes it agressive and dangerous for the ustainability of the economy and society. It is time to put the economic studies in the  bounds of quantiative responsibility. Otherwise, it will fail again and again ...

This is the announcement and invitation to participate the discussion

Economics is under fire both from outside and inside the profession for irrelevance, arrogance, and more. This new Vox debate focuses on two questions: What’s the use of economics? How should we be teaching it to the next generation?

To participate in this debate, please email your commentary to debates@voxeu.org

Lead CommentariesRecent CommentariesPopular Commentaries
Diane Coyle, 18 September 2012
What’s the use of economics? A new Vox debate


Andrew G Haldane, 28 September 2012

What have the economists ever done for us?

Political Calculations on recession in 2013

Ironman @ Political Calculations presented a measure which might indicate recession in 2013: the number of publicly-traded U.S. companies acting to cut their dividend payments each month.
A year ago, we presented a different measure showing a hightened probability of recession.
It seems that the change in populaiton is the reason for the companies to cut dividents.

Exploring Japan: on dismal perspectives of consumer prices

In this post, we continue to validate our predictions of the rate of consumer price inflation (CPI) in Japan by the estimate for 2011. The Japan Bureau of Statistics has estimated the rate of CPI inflation as -0.3%. Now we have an estimate of labour force for 2011 and are able to compare the observed and predicted  figures.  

We have been following inflation in Japan since 2005 when our first paper on the Japanese economy was published and covered the period through 2003. We have revisited inflation in Japan in 2010 and confirmed the predictions of deflation as expressed by the negative GDP deflator. In this blog, we also reported on deflation (both CPI and GDP deflator) several times.  

The case of Japan is the best illustration of our concept linking inflation to the change in labour force. (In a sense, all developed countries stay on the brink of deflation because of the threat of falling labour force.) Therefore we do not suggest the liquidity trap in Japan or any mistakes in monetary policy (inflation does not depend on monetary policy as our model shows.). The evolution of inflation is completely driven by the change in labour force. This is an unfortunate situation for Japan since the level of labour force can only fall in the long run due to the decreasing working age population.   

Previously, we carried out an estimation of empirical relationship between the change rate of labour force, dlnLF(t)/dt, and inflation, p(t).  

First, we test the existence of a link between inflation and labour force. Because of the structural (likely related to definition and measurement procedure) break in the 1980s, we have chosen the period after 1982 for linear regression. By varying the lag between the labour force and inflation one can obtain the best-fit coefficients for the prediction of CPI inflation, p(t),  according to the following relationship (updated with new data since 2009): 

p(t) = 1.39dlnLF(t-t₀)/dt + 0.0004                                (1)

where the time lag t₀=0 years; standard errors for both coefficients are shown in brackets.  Figure 1 (upper panel) depicts this best-fit case. (The period after 2003 is highlighted.) There is no time lag between the inflation series and the labour force change series in Japan. Free term in (1), defining the level of price inflation in the absence of labour force change, is statistically undistinguishable from zero.

A more precise and reliable method to compare observed and predicted inflation consists in the comparison of cumulative curves. Short-term oscillations and uncorrelated noise in data as induced by inaccurate measurements and the inevitable bias in all definitions should be smoothed out in cumulative curves. Any actual deviation between two cumulative curves persists in time if measured values are not matched by the defining relationship.

The predicted cumulative values shown in the lower panel of Figure 1 are very sensitive to the free term in (1). For Japan, the cumulative curves are characterized by complex shapes. There are periods of intensive inflation and a deflationary period. The labour force change, defining the predicted inflation curve, follows all the turns in the measured cumulative inflation.

One can conclude that relationship (1) is valid and the labour force change is the driving force of inflation. Statistically, the evolution of the overall level of consumer prices in Japan is fully defined by the change in labour force. Hence, no other variable or process can affect the change in price. Otherwise, the statistically reliable link would not exist.  

Having the projection of labour force borrowed from the National Institute of Population and Social Security Research, one can predict the future of CPI inflation in Japan. It will be decreasing to the level of -1% per year in 2050.  

Conclusion: invite immigrants and start a baby boom today! Otherwise, the level of consumer prices in 2050 will be a half of that of today.  

 

Figure 1. Measured inflation (CPI) and that predicted from the change rate of labour force. Upper panel:  Annual curves. Lower panel: Cumulative curves between 1982 and 2011. A good agreement between the cumulative curves illustrates the predictive power of our model.

 

Figure 2. Scatter plot: predicted vs. measured rate of CPI inflation.

Figure 3. Projection of the labour force evolution between 2005 and 2050.

Figure 4. The rate of CPI inflation in Japan through 2050.