Did 1.2 Million People Fall Out of the Labor Force in a Month? Umm, NO!

You may have seen this article from "financial blog" Zerohedge, and the rants of CNBC's Rick Santelli making the rounds among whackos of all political stripes, claiming that in one month, from December 2011 to January 2012, more than a million people dropped off the labor force.

What are they basing this on? Population estimate adjustments. See, every year, the Census Bureau makes new adjustments to our population, which changes the estimates on the exact number of people in the population, in the labor force, etc. So in short, the population was adjusted thusly: according to the BLS report for this month (increase from 2011 to 2012): non-institutional, over-16 population increased by about 1.5 million, and persons not in labor force by 1.2 million. Ergo, zomg, 1.2 million people fell out of the labor force in one month!!!!!

Actually, although the data shows up like that in this month's report, it actually has nothing to do with that month. It has to do with population data being readjusted. It means there are 1.2 million more people not in the labor force than previously estimated in last year's numbers. Oh, and the adjustments apply to December:
To gauge the impact on the labor force data, the Bureau of Labor Statistics uses special tabulations of December data that incorporate the new population controls. When applied to December 2011, the updated controls increased the estimated size of the civilian noninstitutional population 16 years and over by 1,510,000, the civilian labor force by 258,000, employment by 216,000, unemployment by 42,000, and persons not in the labor force by 1,252,000.  The total unemployment rate was not affected.  The labor force participation rate and the employment-population ratio were each reduced by 0.3 percentage point.
So it was December's data that would be adjusted when the census 2010 base is applied. Actually, you could apply the census 2010 base going back to the whole last year (and if you want, before that), and each month's data could be adjusted. Basically, what the blowhards are doing is comparing census 2000 based numbers (which all estimates up to 2011 was based on) and census 2010 base numbers, which will be applied from 2012 onward.

The data says nothing about just exactly when or how these extra 1.2 million people "fell out" of the labor force. It may well be that the previous estimates, based on the 2000 census numbers, on just what the portion of people in the job market are compared to the over-16 population, were off. Or that the trend has simply changed over the decade between 2000 and 2010. Maybe people tend to stay in school longer now than they did in the bustling late 90s. Of course, population is also affected by new births and, more importantly, expanding longevity. Population estimates necessarily include estimating when people die, and numbers based on census 2010 would obviously show more people living longer than the census 2000 based numbers. Living longer, but this older population is not in general in the job market. Could the adjustment be largely due to the fact that people are living longer than we thought they would 10 years ago? Hmm.

There could be a range of factors as to why the estimates on just who is in the labor force would vary slightly from a population model and makeup estimate based on the 2000 census to one based on the 2010 census.

As a matter of fact, if you apply the population control effects based on the 2010 census on the December numbers, the labor force participation rate change from December to January would be adjusted three-tenths of a percentage point higher than previously thought. If you compare December's published numbers - i.e. December's Census 2000 based numbers - to January's published numbers (which is census 2010 based), it shows a 0.3 percentage point decline. But adjust the December numbers to reflect the census 2010 base and you see that in fact, when used the same base numbers, the participation rate has not changed at all.
So rather than "1.2 million people falling out of the labor force in one month (hide your children!!!!!)," it turns out that correctly read, the numbers say that in fact, on the net, no one dropped out of the labor force last month. It also stands to common sense - people don't drop out of the labor force when the job market is getting better.

Media Matters has statements from respectable and responsible journalists and econmists on this Obama Derangement Syndrome symptom number 967:
Economic Journalist Barry Ritholtz: "The Fact Is 1 Million People Did Not Drop Out Of The Labor Force In January 2012." Economic journalist and Washington Post columnist Barry Ritholtz explained that those who are claiming that 1.2 million people dropped out of the labor force in January are misreading the Labor Department's jobs report:
So today following an otherwise pretty darn good jobs report, we get the usual perma-pessimists at Zero Hedge and Rick Santelli over at CNBC proclaiming that the report showed a drop of over 1 million people from the labor force in one month. Of course, as ususal, both Santelli and Zero Hedge have a real reading comprehension problem and completely missed that this million+ people isn't some new January phenomenon, but a result of the BLS using the 2010 census data to have more accurate data. In other words, the changes in the Household Survey to the various measures had taken place over the years prior to 2010, but for simplicity's sake, the BLS incorporates these changes into one month (which they clearly point out).
The Wall Street Journal's economics blog puts it even more succinctly:
"There was not a big increase in discouraged workers," economist Betsey Stevenson commented on Twitter. "What happened was Census found a bunch of old people we had assumed died." [The Wall Street Journal, 2/3/12]
But see, that's no fun! Reasonable explanation of data and data trends and adjustments is, how you say, boring! And it's interfering with the Obama Derangement Syndrome!

Always remember: there's lies, damned lies and statistics. Properly used, statics is an indispensable tool for nearly every field of study. However, it is dangerous in the wrong hands, as it's easy to mislead people with statistics, or even be mislead, if one fails to comprehend what any set of given numbers really means. I wish people who don't understand statistics would stop talking about it. I wish people who don't understand numbers would stop writing "financial blogs." I wish networks like CNBC wouldn't hire complete dimwits who cannot read and decipher the simplest of population statistics, which is so intricately linked to economic statistics. I also wish people would get over their Obama Derangement Syndrome.

I wish.