UNEMPLOYMENT IN AMERICA

PART I

Continued…
 UNEMPLOYMENT IN AMERICA

Monday, December 15, 2008

The US Department of Labor submits monthly, quarterly, semi-annual and annual

reports about the number of Americans who lose their jobs and register for
unemployment. The Department claims that its surveys include representation from the
following sources:

"The household survey and establishment survey both produce sample-based estimates
of employment and both have strengths and limitations. The establishment survey
employment series has a smaller margin of error on the measurement of month-to-
month change than the household survey because of its much larger sample size. An
over-the-month employment change of 104,000 is statistically significant in the
establishment survey, while the threshold for a statistically significant change in the
household survey is about 400,000.

However, the household survey has a more expansive scope than the establishment
survey because it includes the self-employed, unpaid family workers, agricultural
workers, and private household workers, who are excluded by the establishment survey.
The household survey also provides estimates of employment for demographic groups."

This information at best is quite misleading. Some people will find the following analyses
both eye-opening and devastating.

Historical Backdrop

In 2002, as a small business man dealing with any number of issues, I reached out to
the Unemployment Office of North Carolina. As a result of written and verbal exchanges
with staff at the Charlotte location, I made the following observations:

Here is the case:

Q. How does the US Department of Labor calculate unemployment?

A. Every individual who applies for unemployment at any State Unemployment Office is
captured in the department's system. All of the former employee's details are inputted
into the department's database.

Q. How is unemployment eligibility determined?

A. An individual is usually eligible for unemployment due to a layoff. Any individual
losing their job due to resignation or dismissal for cause is NOT eligible for
unemployment.

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 UNEMPLOYMENT IN AMERICA

Q. How is unemployment insurance payment calculated?

A. It varies from one state to another. Estimated bi-weekly maximum in 2002 was
approximately $320.00 resulting in a monthly Total payment of approximately $640.00.

Q. What is the period of payment?

A. Each individual receives a maximum payout at the above rate for up to three (3)
months. The cutoff date is a hard date and payment ceases whether the unemployed
individual has found another job or not.

Q. What happens if the individual gets a new job in less than 3 months?
A. Unemployment benefits cease as of the date of the new employment.

Q. What is the true picture of an unemployed individual?

A. It varies.

Case 1: For an individual (A) who worked at a job which paid $7.00 per hour, that
individual earned $560.00 bi-weekly, $1213.33 monthly or an annual gross income of
$14,560.00. Upon registering for unemployment, that individual will experience a
monthly income difference of -$573.33. If the individual does not find another job for the
full duration of the allowed period of three months they will receive a monthly payment of
$640.00 and a total payment of $1,920.00. If that person does not find another job during
that 12 month period, they would have received a total of $1,920.00 in unemployment
benefits for the year. The difference between what they earned at their previous job
versus their current unemployment would be an annual deficit of -$12,640.00.

Case 2: In the second instance the scenario is even more startling. For an individual (B)
who earned an annual gross salary of $100,000.00 the unemployment benefits are the
same. When that individual registers for unemployment at the same office as the first
individual, this is what happens. The registrant receives a bi-weekly payment of $320.00
or a monthly payout of $640.00. This individual who earned $4,166.66 biweekly,
$8,333.33 monthly or an annual gross of $100,000.00 will now experience a bi-weekly
earnings difference of -$3846.66 or a monthly difference of -$7693.33. If that person
does not find another job during that 12 month period, they would have received a total
of $1,920.00 in unemployment benefits for the year. The difference between what they
earned at their previous job versus their current unemployment would be an annual
deficit of -$98,080.00.

OBSERVATIONS:

A quick synopsis will reveal that the true unemployment rate in the United States may
indeed be significantly understated. The individuals who fall off the "unemployment rolls"
are NOT tracked when their benefits run out. The department has no information about
those individuals until they show up on another company's payroll.

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 UNEMPLOYMENT IN AMERICA

Snapshot

What happens when Individual A who began receiving unemployment benefits on

January 1st finds him/herself still unemployed on April 1st ? By this time Individual B
who registered for unemployment insurance benefits on February 1st will now be
receiving their last month of unemployment benefits. What is the mechanism used by the
Labor Department to track and properly report on the employment status of Individuals A
& B on June 1st?

What is the likelihood that the information being reported by the Department of Labor to
the various government agencies is accurate, complete or correct in the period
preceding that person's registration on a new payroll?

It would be quite interesting to find out how the department calculates unemployment for
"unpaid family workers". If these individuals did not earn any pay and therefore did not
pay Federal Unemployment Tax (FUTA) how does the department account for their
"unemployment"?

Sometimes when that previously unemployed individual finally lands a new job, they do
so at a significant income differential. The individual in Case 1 may find another job
paying $6.00 - $8.00 an hour (little or no change), while the individual in Case 2 might
have to accept a job that pays $75,000.00 per annum (a difference of -$25,000.00).

During this period of unemployment, the individuals' fixed costs: rent/mortgage, electrical
expenses, cooling/heating expenses, car payments, car insurance, food, medical, health
insurance, etc. do NOT adjust downward in direct correlation to their new income as a
consequence of a job loss. Those costs also remain unchanged when the individual
finds a lower paying job.

It makes you wonder how this possible "misinformation" could impact the Office of
Management & Budget (OMB) in its effort to develop a viable national budget with
adequate consideration of the true economic conditions in the US economy.

Food for thought...

Regards,
Preston Williams III, M.Sc. • CPA • CIS
Former CEO & Managing Partner |
GBC® Global Services |
PrestonW |

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