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:

Slate Unemployment Chart, March 94 - Dec 02

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?

Image created by wikipedia user BrendelSignature using the book American Class Structure in an Age of Growing Inequality by Dennis Gilbert and the book Society in Focus by William Thompson and Joseph Hickey as a reference pertaining to the percentages consititued by each class.

Image created by wikipedia user BrendelSignature using Dennis Gilbert's book American Class Structure in an Age of Growing Inequality and the book Society in Focus by William Thompson and Joseph Hickey for the percentages of each class. These are introductory Sociology textbooks.

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

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Posted on June 21, 2008, in economics, history, News, political economy, Politics and tagged , , , , , , , . Bookmark the permalink. 13 Comments.

  1. goodtimepolitics

    Back when the democrats raised the fed min wage to almost $8.00 the employers were saying that they would have to let workers go because they could not aford to pay them more! 3 and a half years ago everything went to pot, why, the democrats took control of congress!

    • What you state is false if you look in sales in ferries and Lamborghini states they had the money, but wished to take more away. Why is it the rich became richer in the past ten years? So you better shut up and realize kissing rich butts is only going to end you up paying more bills so they do not have to. A rich pay nothing policy leads to a under funded government and a inflated prices do to ridiculous spending by the rich.

    • Yeah they have their way now. Their are so many people unemployed they take payment under the table just to survive. Your an idiot if you believe the majority of the lower class people are doing this. As they are unemployed, and prices are dictated by a over payed corporate speculator.

      The economy has become worse become of slave labor searching in foreign land, and i do not want to pay Americans attitude. The rich are not going to hurt. You should look at the uneffected and realize why they are the only ones unaffected. Hence if you see a BMW in a run down ghetto the first thing you would think is a drug dealer. So why are you thinking a poor person is affected it when you should be looking at the person doing it and reaping the rewards. Dumbass

  2. The U.S. federal minimum wage is only $5.85.

    I wrote the post and included the links that I did because I wanted somebody to think in a different way about the unemployment rate than the formulaic pronouncements on Headline News every quarter. I don’t think the Democrats or Republicans have much to do with macroeconomic trends.

    Workers must seek higher wages when prices are raised on essential goods and services. When the minimum wage is raised, its a political response to pressure from people who cannot afford to live on the minimum. Of course, even that wage adjustment is just as little as can be. Business interests will use arguments like yours to oppose anything like a living wage.

    Of course, in order to keep prices down, which is what I think you’re getting at, a certain percentage of the population seems to live on nothing. You can try and balance this problem in the money supply all you want, but it never seems to get resolved.

    My sympathy is with the people living in misery. It is much harder to live on minimum wage than to run a business. Try living on $200 per week and you’ll see what I mean.

    A more interesting problem would be to get people the goods and services they need at prices they can afford in a sustainable way.

    http://en.wikipedia.org/wiki/Minimum_wage

  3. UPDATE: July 20, 2008
    I added BrendelSignatur’s graph of the class structure in the U.S. to better illustrate what I mean and added the explanation that I myself am a part-time worker and hence underemployed by most definitions, but certainly not unemployed.

  4. The level of reporting on unemployment is pretty low. Reporters tend to think of unemployment as just a rate and not as a dynamic. This August 13, 2008 article in the Tacoma, Washington News Tribune discusses the rise in unemployment and the rise in job growth as a “paradox”. Its only a paradox if there are only two classes of people: employed and unemployed and the other sets of partial employment or long term unemployment are ignored.

    Reference: “State paradox: More jobs, more joblessness – Washington state’s paradox shows economy improving, but not enough” by Rob Carson. Tacoma News Tribune. August 13, 2008.
    URL: http://www.thenewstribune.com/1032/story/443516.html

  5. Today the free-market American Enterprise Institute has conducted a panel on the upcoming August 26, 2008 poverty report from the Census Bureau.

    This morning C-SPAN2 broadcast the panel, the most remarkable part of which was the panel’s contention that the poverty indicators may be worse than the report suggests.

    Richard Bavier offered the opinion that the change in food stamp enrollment may be the best single indicator of poverty. That rate has increased by 8% in the past year.

    As soon as a comparative reactions come in from other ideological quarters, I’ll do a post on that.

    Page on the AEI panel: http://aei.org/events/eventID.1785,filter.all,type.past/event_detail.asp

  6. It will cost you a $175 subscription to see it, but the independent research group Shadow Government Statistics also calculates an alternate unemployment rate. The SGS results seem to run 9 % above the official rate, that is, SGS will find an effective unemployment rate of 15% vs the 6% reported by the U.S. government.

    http://www.shadowstats.com/alternate_data

    A September 25, 2008 C-SPAN interview with SGS founder, economist John Williams, can be found here:

    Interview page: http://www.c-spanarchives.org/library/index.php?main_page=product_video_info&products_id=281349-9

    The flash video: http://www.c-spanarchives.org/library/includes/templates/library/flash_popup.php?pID=281349-9&clipStart=&clipStop=

  7. goodtimepolitics is a dogfucking Southern retard

  8. some of us are field slaves some of us are house slaves we all work for the likes of madoff

    • The true is the few will always dictate over the many. The only way to a good society is considered unreachable by an political economist. But yet a political economist believes a person can survive on 7.25 an hour in New York city. Hence New York minimum wage is affordable living in a crack den with ten other Americans eating road kill.
      They also believe the best way to resolve a recession is to make it worse. Hence less pay for the many and more pay for the few. Why people are killing each other has increased does not stun me.

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