Inventing Unemployment: How This Economic Indicator Came To Rule Us


Ask a classical economist about unemployment, and the answer might surprise you: there is no such thing. In any society, there are always jobs that need doing by someone at some price. Therefore, theoretically, there is no unemployment; there is only an individual’s choice to work or not to work. Ask someone without gainful employment what he thinks of that answer, however, and the response is likely to be unprintable.

Until the nineteenth century, the concept of unemployment was alien. Most people didn’t earn a wage; they did not have “jobs.” They farmed, or traded, or served, or fought. Some were artisans or blacksmiths or stevedores, but most worked the land to nurse food out of stubborn soil. Factories were small, with a few dozen workers. There were mines here and there, and, of course, servants. But there was no framework of employment versus unemployment, only of want versus plenty, hard work versus idleness, good times versus bad.

That began to change in Western Europe with what we now call the industrial revolution. As steam power facilitated the growth of larger factories, and then railroads made possible the mass transportation of finished goods, jobs and wages became more central features of society. And as more people became employed and were paid a wage, more people also became unemployed. Still, it wasn’t until after the Civil War in the United States that anyone thought seriously to count who had jobs and who did not.

In the United States, the birth of economic statistics was part of an overall movement toward social and political reform. The drive to create these statistics was fueled in part by a rising national suspicion that large companies, monopolies, railroads, and banks were reaping disproportionate rewards and thereby robbing the common man of his hard-earned gains. In Europe, a similar sensibility led to an efflorescence of Socialist movements, not to mention the birth of Communism. In the United States, it led to the birth of unions. Unions, in turn, believed that labor was being deprived of its rightful share of prosperity, but they couldn’t prove that. Hence the attempt to measure just what was going on in order to add weight to the widespread sense that many were suffering unnecessary hardship.

The men who were drawn to the obscure profession of measuring America were of two sorts: academics and technocrats or passionate reformers like Ethelbert Stewart. The late nineteenth century was rife with the creation of countless associations, from academic guilds such as the American Political Science Association (1903) and the American Economic Association (1885), to professional interest groups such as the National Association of Manufacturers, founded in Cincinnati, Ohio, in 1895 by a group of businessmen concerned about the deep economic panics that regularly dented American progress at least once a decade. The American Statistical Association was founded before them all, in Boston in 1839. But without the tools provided by these other, later groups, its work had minimal impact on defining the contours of the modern economy.

Without the passionate reformers, however, statistics and economics may have stayed on the fringes of society, or in the background along with ornithology and mountaineering. What animated Stewart was anger at how hard most Americans worked, how little they earned, and how appalling labor conditions were. By developing tools to measure precisely how bad and precisely how unsafe and exactly how tenuous the plight of the workingman was, Stewart believed that conditions could be changed, laws enacted, protections created. As long as the world remained unmeasured, however, anecdotes could always be trumped by anecdotes, and those with power and money could always argue that things were better than what a few malcontents claimed.

Stewart worked for the state of Illinois until the sleepy Federal Bureau of Labor recruited him in 1897. That agency, founded in 1884 and underfunded, had sprang out of the wave of disruptive and violent strikes that pockmarked industrial America. Its mandate was to address the perilous state of labor relations and act both as an advocate for workers and a mediator with owners. Along with so many institutions, its birth was part of what we now call the Progressive movement, which seized much of American society toward the end of the nineteenth century, and Stewart was in that respect very much a man of his time. Today we pay little attention to the countless public servants who staff numerous agencies; the government has become a bureaucracy with a history. But at the turn of the twentieth century, these agencies were all new, and many were yet to be created. With the passage of the Pendleton Civil Service Act in 1883, civil service became a profession rather than a reward for political support, and with the spirit of reform on the rise, more people were drawn to government as an agent of positive change. Stewart embodied that spirit, and he went about his work with pride and urgency. He spent years in assorted roles ranging from manager to mediator until he was recruited to be the second in command to the head of the Bureau of Labor Statistics, Royal Meeker, in 1913.

The creation of the Bureau of Labor Statistics had followed the initiatives of several states. The ever-progressive Massachusetts had led the way in 1869 and was the first state to create a labor department focused on collecting and assembling information about employment and working conditions. A dozen other states followed suit over the next twenty years. In all cases, the impetus was the same: labor unions pushed for official collection of information that would support their contention that conditions were poor, wages insufficient, safety nonexistent, and companies indifferent. The federal government was then spurred, somewhat reluctantly, to action when President Chester Alan Arthur, an accidental president if there ever was one, signed into law the creation of the Federal Bureau of Labor, along with its statistics office, in 1884. In 1913, it became part of the cabinet as the Department of Labor.

By the time Stewart arrived, the Bureau of Labor Statistics (BLS) had been in existence for nearly thirty years, but in terms of measuring employment, it could just as well not have existed. Yes, its staff was imbued with a sense of noble purpose. Stewart was not alone in his zeal. As part of a general trend to celebrate efforts to define and measure reality, many of the men who worked for the agency viewed their profession as an enlightened pursuit and as central to making the world a better place. They believed that better numbers would ameliorate diseases, increase the food supply, enrich the world, and empower the nation. Said Carroll Wright, the first BLS commissioner, “Statistics are the fitting and never-changing symbols . . . to tell the story of our present state.” Wright himself was a former head of the American Statistical Association and a forceful advocate for the role that better statistics could play in crafting a stronger country. He spent his life preaching the gospel of statistics as key to good government and better labor relations, and as tools that would allow governments and businesses to design the right policies and make it possible for people to learn over time by giving them the means to compare their own present to the past.

Sardonic and pithy, Stewart was very much what Mark Twain would have been had Twain been a statistician. He had little truck with homilies and ignorance, and saw in statistics a way to force society to deal with pressing issues of justice, fairness, and decency. “The working people of the United States,” he declared, “are entitled to know what the changing industrial conditions are . . . and the nature of and extent of the occupational readjustment which is necessary to meet them without loss of earning power.” As an advocate for a minimum wage law long before that was fashionable, Stewart saw the issue as one of simple social utility: unless people had sufficient means to meet their needs, their lives would be diminished, as would the strength of the country.

Even so, he was skeptical of too much reliance on science and math. Statistics were a guide and could provide a map, but he was wary of the “mania for statistics” that accompanied the early–twentieth century mantra of rigorous measurement. The belief that society could be treated as a machine and that by understanding the inputs you could determine outcomes had limits. “The things that make human life human do not lend themselves readily to the statistical method,”he wrote. Decades later, as we shall see, similar sentiments would be expressed more poetically by Robert Kennedy.

Stewart was hardly alone in his progressive beliefs. In fact, many of the individuals who worked for the bureau strove for social justice. Royal Meeker, the BLS commissioner before Stewart, and an advocate for workmen’s compensation for accidents, remarked, “I do not happen to be a Socialist, but if it is socialism to provide adequate protection to the lives, health, and well-being of our working population, then let us have more of the same.” These sentiments were inseparable from the impulse to define and delineate what had until then been an amorphous issue: just who was and was not employed and why.

Excerpted from THE LEADING INDICATORS: A Short History of the Numbers That Rule Our World by Zachary Karabell. Copyright © 2014 by Zachary Karabell. Reprinted by permission of Simon & Schuster, Inc. All Rights Reserved.

Zachary Karabell is an author, money manager, commentator, and head of global strategy at Envestnet. He is also the president of River Twice Research, where he analyzes economic and political trends. Educated at Columbia, Oxford, and Harvard, Karabell has written eleven previous books. He is a regular commentator on CNBC, MSNBC, and CNN. He writes the weekly “Edgy Optimist” column for Reuters and The Atlantic, and is a contributor to The Daily Beast, TIME, The Wall Street Journal, The New Republic, The New York Times, and Foreign Affairs.