The Real Unemployment Rate
I’ve always assumed that the unemployment rate is truly twice what it is reported to be. I see way too many people who are living off the grid to accept the official figures. Even allowing for where I am, it still seems wrong.
The Bureau of Labor Statistics does collect this information, what it calls “alternative measures of labor underutilization“. You can click on that link and cut the information up in 12 different measurements, both seasonally adjusted and not. Seasonal adjustment must account for farm labor in some way.
Some of the reports go back decades. The most interesting data, the most inclusive “total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers”, only goes back to 1994.
Anyway, “total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers” must be closer to the true figure of unemployment.
The figure includes “Discouraged Workers: Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.” This wouldn’t appear to include prisoners, but it should. Prison entails enforced unemployment. I don’t think that working in a UNICOR wood shop counts.
I can find only 5 webpages that link to the BLS’s most expansive unemployment calculation.
Anyway, if you do what Slate.com columnist Daniel Gross did, and chart the difference between the most expansive and the least expansive reportage of unemployment it looks like this:
From Slate. A legible version can be found on Slate’s site here.
It would be nice if, every quarter, someone on an economic beat covered the difference between the more inclusive figures and the low-ball numbers reported as the unemployment rate. All I could find was this 2004 article on Slate.com by Daniel Gross: “Odd Jobs: Why The Unemployment Rate Is Higher Than It Looks“. Gross is just addressing the discrepancy and moving on. As a guy who thinks that speculative bubbles are good for you, he’s hardly concerned with microeconomic misery.
The analysis provided here includes more charts and diagrams, explaining many different ways to look at the BLS’s unemployment data. The images and graphs provided in this article are more interesting than Gross’s as well, becase they explain the different rates used by the BLS from U-3 to U-6 and even factors in population growth. The author finds that the ‘effective’ rate is higher than the usually reported U-3 rate. The more expansive rates are used in two 2008 analysis papers on the same site “Trade Truth #1: The NAFTA Nemesis” and “Jobs & ‘Trade’ Data Update Jun08“. I’m not endorsing these conclusions. I haven’t read them in any detail. The articles exist because the author, one Dr. Powell, uses systems theory in his consultation business. Knowing more about systems theory would help the reader get more out of the articles. You have to bear in mind that the articles have serve some business development purpose, and that may effect the analysis.
Still, I am impressed with the articles, because the author is actually using the BLS’s readily available information. I can find nothing in the wire services or business press using the BLS material for any comparable analysis. If Dr. Powell can appraise the BLA’s figures to tease out the story of the underemployed shy don’t we get more of this analysis from economic journalists every quarter?
There are two reasons. The first is a lack of available time and space to allow for the discussion. This is a structural problem in the media. It would take several minutes just to explain the differences between the different rates of unemployment and the economic factors which impact most on each. In the 30 or so seconds allowed on a headline news channel, that’s impossible. In a longer format show, a 2 minute segment would be mostly given over to depicting the situation of individuals. Papers don’t seem to publish many charts and graphs. Probably because of the expense. Without analysis, the repeated depiction of people suffering marginal employment woes offers little actionable information.
The other reason is that the unemployment rate isn’t reported as anything other than an economic indicator. Knowing the most recent trend in the rate let’s you know where the economy’s headed, but doesn’t help you understand or develop economic policy. Everybody’s got an economic policy, of some kind, but most are formed from random bits of available, meager, information.
Writing in the July 14, Wall Street Journal, publisher Mort Zuckerman lists ten factors commonly overlooked in calculating the unemployment rate. Zuckerman is interested because the rate is hitting 10% nationwide in the Summer of 2009 and he’s a political opponent of Obama. Regardless the list contains factors of unemployment that could be considered in any calculation:
– June’s total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.
– More companies are asking employees to take unpaid leave. These people don’t count on the unemployment roll.
– No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn’t searched for work in the four weeks preceding the survey.
– The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.
– The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That’s 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).
– The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.
– The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.
– The goods producing sector is losing the most jobs — 223,000 in the last report alone.
– The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.
If more information was readily available, more people would reconsider where they fit into the employment picture.
This graphic, which someone else created from introductory sociology textbook info, shows the “Lower Class” making up 17-20% of the U.S. population. Members of this class are underemployed, marginally employed, or stuck in a part time job. They are also underreported. Presumably a lot of the fluctuation in the unemployment rate must consist of the marginally employed moving in and out of the “employed” column. As a part-time worker, I probably fit in this category myself. But i want to know generally: who is marginally employed in this country, what is broad situation of the marginally employed, and how do we, by and large live?
Relevant wikipedia page with graphs: http://en.wikipedia.org/wiki/American_lower_class
Census Bureau resources on Poverty: http://www.census.gov/hhes/www/poverty/poverty.html
Posted on June 21, 2008, in economics, history, News, political economy, Politics and tagged American lower class, Bureau of Labor Statistics, Dennis Gilbert, labor underutilization, Research, underclass, unemployment, UNICOR. Bookmark the permalink. 13 Comments.