Business Update with Mark Lacter

Unemployment reports don't tell the whole story

KPCC's business analyst Mark Lacter says the latest jobs report looked good, yet so many people are being counted as out of work.

Steve Julian: Mark Lacter, why is that?

Mark Lacter: This obviously has not been a strong recovery, Steve, and you're hearing many different explanations: debt levels are still high, money is still tight, businesses are still cautious - and now you have the government sequestration cuts, which may be having an effect, as well.  But here's another possibility - that the economy might actually be in better shape than we're being led to believe because people are finding work that's off the books.  And, we're not talking about drug dealers - we're talking about housekeepers, website designers, video game developers, construction workers.  In these kinds of businesses, people are often paid in cash.  You know, there was a recent study of California contractors, and two-thirds said they had no direct employees.  That means they're not paying workers comp taxes or payroll taxes.

Julian: So, it's possible there's no record of their employees even working -

Lacter: - and that could skew the government's job numbers.  Now, what we're talking about - sometimes it's called the underground or gray economy - has always been a problem, especially during a recession.  But, we're not in a recession anymore, and yet, the number of people being paid in cash still appears to be high, especially in Southern California.  Of course, coming up with cold hard numbers is next to impossible.  But, we do know that people are buying stuff - retail sales at local shopping centers are back to the levels from before the recession, and car sales are up substantially throughout the region.

Julian: Therefore, the money to pay for all that has to be coming from somewhere.

Lacter: We also know that more people, especially younger people in creative occupations, like the idea of casual work arrangements as opposed to a traditional nine-to-five job.  One economist estimated that the unemployment rate could be a couple of percentage points lower if you included work that's off-the-books.  Now, that's just a guess, mind you, though it's an interesting one.

Julian: How hard is it to gauge the unemployment rate?

Lacter: Very hard, even within a relatively small region.  Let's just take L.A. County, where the jobless rate in March was 9.9 percent (the April numbers are due out next week).  Now, if you break that down to the cities within L.A. County, there's huge variation.  The city of Commerce is close to 19 percent, the city of L.A. is at 11 percent, Santa Monica 8.2 percent, and Torrance 4.9 percent (these numbers aren't seasonally-adjusted, and that can also make a difference).  So, that's for L.A. County.  Let's broaden it out to include the L.A. metro region, which includes Orange County's typically lower unemployment rate.  By that measure, the March jobless rate was nearly a full percentage point lower, at 9 percent.

Julian: Don't those numbers get revised several times?

Lacter: They do - and the revisions can be substantial.  Point is, when you see a big headline about the unemployment rate going up or down - or the number of jobs added to the workforce being better or worse than expected - you're only getting the barest snapshot of what's going on.

Julian: And yet, these news stories - along with the analysts' comments - are in our faces.

Lacter: And they can influence public attitudes about where the economy is headed.  What we do know is that this has been a very unusual recovery - partly because the recession was the result of a financial crisis, and those downturns historically are devastating to the job market, and can take years to sort out.  You have entire industries that have gone through restructurings and downsizings - businesses that are fundamentally changed from what they were in 2007.  This is not necessarily all bad, but it is different, which is why you can't draw too much from a single month's unemployment rate - good, bad, or indifferent.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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