10/08/2012 11:53 am ET Updated Dec 08, 2012

Controversy Over U.S. Unemployment Rate Masks The Real Issue Underlying America's Crisis

The Bureau of Labor Statistics latest jobs report suggested 114,000 non-farm jobs were added in September, while the national unemployment rate dropped from 8.1 percent to 7.8 percent. With the U.S. presidential election only one month away, the Republicans naturally claimed that something was fishy about the jobs report. Just as naturally, the Obama administrations maintained that the BLS statistics are compiled by non-partisan professional bureaucrats. So, what's the answer?

They are both right. The BLS numbers may be honestly compiled, but they are based on abstractions and sampling assumptions, and are frequently corrected long after their original release. Furthermore, the numbers being argued about are the U3 data, which is an incomplete measure of unemployment in the U.S. economy. The more reliable U6 data, which includes part-time workers unable to find full-time employment, is still well into double-digit figures.

The more interesting aspect of the latest LBS data is this: Even if the 114,000 new jobs figure is correct, it is below the level required to match new entries into the labor force. In other words, the U3 (and U6) rate should have risen instead of declined. Why didn't it? Simple explanation: the long-term unemployed are being "removed" from the statistical measurement of the labor force. If the BLS considers you a "discouraged" worker, you are no longer compiled under the data for unemployed workers. This may look more positive for the upcoming presidential election if you are President Barack Obama, but it does nothing to facilitate economic growth.

There is another dimension to the Bureau of Labor Statistics data which demonstrates its utter irrelevancy to the overall health of the economy. The numbers in the BLS report, or the claims by the Obama campaign regarding total jobs creation since the president took office, not to mention GOP candidate Mitt Romney's boast that as president, he would somehow "create" 12 million new jobs, miss what is most relevant to a comprehensive economic recovery in the United States. The real issue is the decline in purchasing power by the U.S. labor force, concomitant with a parallel increase in economic power of a very small financial oligarchy. As is well known by labor statisticians, frequently the new jobs created (or promised) are actually lower paying full-time jobs, or part-time positions with significantly reduced levels of compensation. The cumulative impact of this phenomenon has been the erosion in the size and collective purchasing power of America's middle-income labor force, leading to weaker consumer demand and a collapse in housing values. Neither President Obama nor Governor Romney has on offer a realistic and cogent plan to address the real core issue underlying the factors that have left the U.S. labor force diminished not only in its employee count, but more importantly, in its financial capacity. Until the latter issue is addressed, all the promises made by American politicians for a future economic recovery are political rhetoric and nothing more.