Why our employment figures are wrong

By Sara Horowitz
June 23, 2011

By Sara Horowitz

The opinions expressed are her own.

The national employment figures are an economic bellwether. They profoundly affect U.S. markets, consumer spending, and even the fate of national elections. With so much at stake, you’d think we would be counting the workforce accurately. Unfortunately, we’re not.

The United States treats jobs as something turned on or off—employed or unemployed—but that binary view no longer reflects how Americans really work. Whereas in the middle of the 20th century industrial employees worked one job for one company, today, there are 42 million consultants, independent contractors, entrepreneurs and freelancers working multiple gigs for multiple clients.

Although independent workers were a full one-third of the U.S. workforce at last count (which was 6 years ago), they aren’t counted by the Bureau of Labor Statistics in a consistent and ongoing way. Current statistics tend to lump workers into one of three classes: private wage and salary workers, government workers, and the self-employed. But these groupings don’t account for the nuances in how people work now and the overlap between groups. For example, on-call or contract workers might be lumped in with wage and salary workers, when really they’re independent workers. As a result, our outdated numbers have led to outdated policies that no longer meet the needs of America’s 21st century workforce.

Take, for example, the issue of nonpayment. W-2 employees know that their paycheck will be directly deposited into their checking account every two weeks, and don’t have to worry about chasing down their employer for payment. In fact, the Department of Labor could fine your employer—or send them to jail—if they don’t pay you. Independent workers, however, have no such protection from nonpayment, late payment, or partial payment, leaving freelancers with only two options: sue or walk away. According to Freelancers Union member survey data, that’s a gamble many companies are willing to make: 77% of freelancers report having trouble collecting payment at some point in their career.

In a way, we’re going back to the future. When the U.S. economy began to shift from farms to factories in the mid- to late-nineteenth century, the state of the nascent workforce was largely unknown: there was no national unemployment rate, consumer price index, or average household income. In 1884, President Chester Arthur signed a bill creating the Bureau of Labor Statistics. The BLS produced numbers, and policies soon followed, including many we take for granted today: the eight-hour workday, child labor bans, and unpaid wage claims.

Just like back then, reliable government figures on today’s workforce would make it harder to ignore the many hurdles that freelancers face. Mirabai Knight, a self-employed stenographer for the deaf, found herself drawing on emergency funds just to scrape by when one of her major clients fell four months and $9,000 behind. Without the support of the Department of Labor, she had to ask herself—was it worth the time, energy, and expense of hiring a lawyer and suing her client in court?

Freelancers are also excluded from affordable, group-rate health insurance and retirement plans. Deborah Lattimore, an author-illustrator who has published 40 books, pays an unbelievable $32,000 a year for health insurance, and still may have to sell her house after racking up over $150,000 in medical fees over the last five years. What’s worse, as a freelancer working in a slow economy, she has not been able to collect a dime of unemployment insurance despite her history of accomplishments and steady work.

With more reliable data on independent workers like Mirabai and Deborah, we’ll have a better understanding of the impact these 42 million workers have on the economy, and the extent of the challenges they face. We’ll also be able to create sound policies that meet the needs of 2011’s entrepreneurial workforce—not the 1940’s industrial workforce. There doesn’t seem to be any economic argument for not accurately counting independent workers, but rather inertia and perceived lack of urgency.

President Obama has taken a crucial step in allocating a modest $1.6 million to count independent workers, who have not been surveyed since 2005. Economists across the political spectrum agree that reporting regularly and in more specific ways on this important sector is critical to understanding our evolving economy. It’s crucial that Congress keep this money in the budget.

The founding chief of the Bureau of Labor Statistics, Carroll Wright, went on to win world acclaim and the French Legion of Honor for pioneering the fields of practical economics and sociology to document the rise of the Industrial Age. More than a century later, Congress must approve funding so the BLS can innovate again. Today, well into the Information Age, it only makes sense to accurately collect the information.

20 comments

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Well I agree with her. Not directly related to topic but unemployment being imposed to people for the sake of imposing a chore over them is felony by the way to deprive them of fair living conditions as well as rights of breeding since women want men with jobs quite naturally.

Posted by ta-boo | Report as abusive

[...] I know posted this editorial on Facebook. I read it with great interest, both because I’m a freelancer and because I also [...]

M’s Horowitz comments are excellent and very much on target.
It is nice to know that the independent professional is not considered in real terms part of the work force or a contributor to the economy.
Hence, we can ignore the plight of 42 million workers.

Posted by The1eyedman | Report as abusive

Yes, 1eyed man, let’s completely ignore any problems in our data-collection because what we find might be inconsistent with our ideology, or somehow be used to justify an extreme and irrational action. Get over yourself, moron. If you don’t have anything intelligent to say to an article like this, don’t say anything at all.

Posted by ZPT | Report as abusive

This article is spot on. Our politicians can’t wait to redraw district maps to insure getting credit for a maximum representation for their party. No such cyclical effort is made to update many of the metrics we use to adjust economic policy. The crippled statistics make adjustments by our economists much less relevant

Posted by auger | Report as abusive

I cant believe no comment is made as to when ones unemployment ends you are no longer counted as part of the unemployed statistic. I thought for sure this would be mentioned.

Posted by pcerne | Report as abusive

It is refreshing to read truth in opinion articles instead of one-side rhetoric. This is exactly the type of news and commentary that makes media organizations worth their weight in gold.

Great article with straight-forward data and facts.

Thank you!

Posted by trajan52 | Report as abusive

This article should be titled differently. The Rights of Independent Workers or something like that.
But back to the original title of the article, I also think that the Unemployment data is wrong. They should also take into account as “unemployed” when people have to take jobs that do not pay a living wage. For example, I have a college degree, and at during the dot com crash I had to take a 6 dollars an hour job with which I couldnt even pay rent, and had to supplement it what I had left in savings. 6 dollars an hour is not proper employment. http://bit.ly/mvaqyN

Posted by bitlyvideoquell | Report as abusive

@ ZPT, google “Facetious”. Your comments are amusing, you must be very intelligent. By the way, do you care to expand your wordy first sentence. More specifically, I find “our ideology…to justify an extreme and irrational action” to be the most amusing. Very big words, can’t wait to read your next post:)

Posted by chemlawdr | Report as abusive

Employment figures need a major overhaul. Not only are the freelance workers misrepresented, but other unemployed groups are purposefully counted incorrectly as well. With so much at stake can an accurate method be assembled that is immune to political agendas?

Posted by Discombobulated | Report as abusive

One thing Congress could consider, that would boost the economy, would be a reduction in the self-employment tax. At the current rate of 15.3%, a self-employed person has a pretty heavy burden of taxation. Granted, it goes to Social Security and Medicare, programs that do benefit the self-employed, but if the rate were reduced, more of the self-employed would be successful and more would grow into small businesses creating jobs for others.

Congress: please consider reducing the self-employment tax rate. It’s a crushing burden on freelancers. When our country was founded, many colonists were self-employed but they paid no burdensome tax. Couldn’t there be a compromise that would lessen the tax burden on freelancers?

Posted by Dave555 | Report as abusive

As one of those “freelance” writers, I know well the problem of collecting pay. It’s a constant hassle.
Great article.

Posted by neahkahnie | Report as abusive

The headline seemed to imply that someone was finally going to blow the lid off of our phony unemployment statistics. Well, it did in only one area related to barely counting independent workers – consultants and contractors. It’s not insignificant, so it’s a start.

However, the big story lies in the history among the following unemployment rates:
- the “official” rate
- the “under-employment” rate including part-timers
- the real rate including long-term unemployed

Some years ago the Executive and Legislative Branches colluded to create an “official” unemployment rate that tended to be lower, much lower than what the BLS was reporting. The ostensible reason for the change was to reduce costs to the BLS of collecting data on the spectrum of unemployment conditions. The “official”, less expensive rate was to include only data from the states counting those receiving unemployment benefits and applicants for unemployment. Once these people stopped receiving unemployment, they were then termed “no longer in the labor pool” and “no longer looking for work”.

The difference between the “official” unemployment rate and the under-employment rate is typically about 70% during good times. The real rate is even more, especially during bad economic times. Who says this? Is this some wacko conspiracy theory? No. The United States Labor Department’s Bureau of Labor Statistics reports this regularly, week after week, month after month and year after year.

At the beginning of this insubordination – not stopping the surveying, measuring and analysis of part-time and long-term unemployed – there was some gnashing of teeth by Congress and the Executive Branch. However, it became moot because the media fell in line with reporting the “official” rate, not catching the distinction and even claiming it was more accurate because it was based on hard data from the states. (They didn’t catch the distinction between accuracy and precision.)

Last year, MSNBC began reporting the “real” unemployment rate, although they were actually reporting the under-employment rate – still an improvement.

Why does this matter? For the same reasons given in this article, inaccurate information on the true nature of unemployment leads to bad decisions about how to deal with it.

Potentially Employable: What we really need to know is how many people who aren’t working, but used to work (and still can) and those new in seeking membership in the workforce cannot find employment now. Isn’t that “unemployed”?

Posted by ptiffany | Report as abusive

Hi Sara,

What an important article this is because it recognizes that freelancing is a more critical part of the economy post GFC, but also the baby boomer generation that has “retired” by being made redundant needs to freelance their acquired skills to help supplement their retirement income. More articles are needed about this important topic. An article about income protection for people like Deborah Lattimore (highlighted in your article) would be a very interesting topic for many freelancers.

Thank you for this article.

Jack Taggerty
http://www.freelance-work-guide.com/

Posted by JackTaggerty | Report as abusive

@Ptiffany: Labor Force Participation already measures some of that (capable of working) and that is at 64.7%(BLS) which is the lowest it’s been in 10 years and has been steeply declining since 2008. This is one of the reasons that short term declines in employment figures don’t encourage me much.
I’m kind of surprised this isn’t mentioned more with employment data. Primarily I read about participation rates as they relate to Social Security and Baby Boomers because the number of workers supporting the retirees roughly parallels this rate and is up for a big drop soon.
I usually look at unemployed seeking work numbers and compare them to the number of employable discouraged workers to get my disappointment about the economy for the week.

Posted by stickwelder | Report as abusive

If past practices are any predictor, better data on the self-employed and small business areas would be seen solely as a new area to impose heavy taxes without any benefits. So why would the public be interested in better numbers? As with every other piece of data the Government gathers it would be used to subjugate the common people, not to help them. Maybe we could keep our 3 stupid, unwanted wars going another decade??

Without new electoral procedures no new taxes will be used for the public good.

Posted by txgadfly | Report as abusive

Source: http://www.bls.gov/web/empsit/cpseea01.h tm

May Recap:
U.S. population over 16 years of age: 239,313,000
Number of people employed: 139,779,000
Percent employed: 58.4%
Number of people not employed: 99,534,000
Reported Unemployment: 13,914,000

Percent not employed: 41.6%

Unemployment reported: 9.1%

So, 9.1% get a bailout from the taxpayers, 32.5% do not.

Posted by SpudM | Report as abusive

I also agree the title is very misleading. Perhaps “The Rlight of the Independent Contractor” would be better. Anywys, I also have to point out that Deborah Lattimore is somewhat responsible for her situation. It is up to the contractor to make sure they pay unemployment insurance during times of feast so that they can collect during times of famine. It’s sucks to find out about that after the fact, but it is her fault. Still, 32k a year for health insurance is ridiculous.

Posted by RexMax46 | Report as abusive

Having had my business as an attorney primarily representing small businesses crushed by the economy, I am now looking for work on a “W-2″ basis. I believe the next wave in this economic mess will be the effect on the professions – doctors, lawyers and accountants. In Northern Calif. we are already seeing attorneys go through bankruptcy and losing their homes and practices. The fact that this is going unreported is remarkable. No one will go untouched in this.

Posted by wmaclough | Report as abusive

The title is completely misleading. I too assumed, naturally, the author would discuss how the BLS stops counting people after a given number of months, or if they simply tell someone they’ve give up looking for work since it’s been X months since they had any luck or a job whatsoever.

Instead it seems as if this is a piece to highlight the plight of a small (but growing) segment of the workforce. If you don’t work for ONE firm, but several, you are contracting your services to them. I could care less what the tax gurus define that as; you’re self-employed. You receive work in a very similar way to the self-employed, and you most likely provide your own benefits.

When the author could have actually shed light on the ‘real’ vs. ‘stated’ unemployment rate, she instead chose to waste an article on talking about what are essentially self-employed people, and their plight. WE’RE A NATION OF ENTREPRENEURS, get over it.

Posted by Adam_S | Report as abusive

[...] Why our employment figures are wrong | The Great Debate. [...]

Adam_S, clearly you lead a sheltered life in a comfortable village somewhere. Perhaps you should also try reading a little more than you write. The Wall Street Journal would be a good place to start in view of your bias against Reuters. The truth of the matter is you will find little difference in what they report.

By the way “ENTREPRENEURS” need financing which U.S. banks are loathe to do as they make a killing on Hedge Funds(bets against companies and investment vehicles succeeding).

Posted by coyotle | Report as abusive

[...] Quite frankly I’m sick of people waiting around for something better to come along. I’m also sick of news outlets setting fuel to the fire of a struggling economy. And finally, I’m sick of labor statistics that seem to think that full time jobs with benefits are the only jobs worth counting. [...]

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