What is the Real Unemployment Rate in the U.S.?

The politicians say one thing, the media another, and numbers are tossed around all the time.  So what is the real story with unemployment?  The U.S. economy adds a couple hundred thousand jobs in October, but the unemployment rate goes up.  What’s the deal with that?  More people are working than in recent years, but the economy still struggles.  Why?

 

The United States has an odd (and misleading) way of calculating unemployment numbers.  I’ll explain a little about how unemployment is calculated in the United States, unlike many other countries.

 

First, some information from the Bureau of Labor Statistics, released on Friday, Nov 8, 2013.

 

“Both the number of unemployed persons, at 11.3 million, and the unemployment rate, at 7.3 percent, changed little in October. Among the unemployed, however, the number who reported being on temporary layoff increased by 448,000. This figure includes furloughed federal employees who were classified as unemployed on temporary layoff under the definitions used in the household survey. (Estimates of the unemployed by reason, such as temporary layoff and job leavers, do not sum to the official seasonally adjusted measure of total unemployed because they are independently seasonally adjusted.)

The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 4.1 million in October. These individuals accounted for 36.1 percent of the unemployed. The number of long-term unemployed has declined by 954,000 over the year.”(1)

Who is Unemployed?

Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Actively looking for work may consist of any of the following activities:

  • Contacting:
    • An employer directly or having a job interview
    • A public or private employment agency
    • Friends or relatives
    • A school or university employment center
  • Sending out resumes or filling out applications
  • Placing or answering advertisements
  • Checking union or professional registers
  • Some other means of active job search (2)

 

Basically, if a person stops looking for work, they are no longer counted as unemployed.  Also further complicating the real numbers, persons that are “unpaid family workers” are considered employed if they worked 15 hours or more in a week.  Only persons 16 and over are considered in the employment statistics.  There is no upper end range limit.

The BLS has very interesting data, some that better shows the real situation in the U.S.  Here is a BLS alternative measure of labor underutilization:

Measure

Not seasonally adjusted

Seasonally adjusted

Oct.
2012

Sept.
2013

Oct.
2013

Oct.
2012

June
2013

July
2013

Aug.
2013

Sept.
2013

Oct.
2013

U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force

4.33.73.74.44.03.93.83.83.8

U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force

3.93.53.64.23.93.83.83.84.0

U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)

7.57.07.07.97.67.47.37.27.3

U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers

8.07.57.48.48.28.07.87.77.8

U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force

9.08.48.39.39.18.88.78.68.6

U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

13.913.113.214.514.314.013.713.613.8
NOTE: Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. Updated population controls are introduced annually with the release of January data.

The last line is important.  It is a much more “real” number of the unemployed and under-employed.  Those numbers are scary at more than 13% and 14%. (Seasonally adjustments refer to changes in employment due to holidays, school year, harvest times, and even the weather.)

And even more complicating is how many people need to be hired to bring unemployment back into the 5-6% range prior to the great recession.  According to two economists on the Federal Reserve Board, “In a new paper , Chicago Fed economists Dan Aaronson and Scott Brave try to estimate how many jobs the economy needs to add each month to keep the unemployment rate steady, after taking into account population growth and other factors.

Their answer: 80,000 jobs. That’s far below the 150,000 to 200,000 jobs required in the 1980s and 1990s, and significantly below the 100,000 to 150,000 figure often cited by economists today. Messrs. Aaronson and Brave argue those higher figures fail to take into account underlying changes to the U.S. labor force, notably slowing population growth and a long-term decline in the share of the population that’s working.” (3)

The media suggests one thing, the government another, but your life situation is what really matters.  Hopefully, this post will help you better understand how unemployment is calculated and remove media and political bias.

 

References

 (1) http://bls.gov/news.release/empsit.nr0.htm
 (2) http://www.bls.gov/cps/cps_htgm.htm#unemployed
 (3) http://blogs.wsj.com/economics/2013/06/06/how-many-jobs-does-it-take-to-bring-down-unemployment/