The Real Unemployment Rate-
Many economists believe that the popularly quoted Unemployment Rate understates the real unemployment rate because it fails to include workers who would like to work but have given up looking because they don’t think there are any jobs available for them.
Will the “Real Unemployment Rate” Please Stand Up?
Is U-6 the“Real Unemployment Rate”?
The U-6 is the broadest measure of unemployment including those who have given up looking for work and those who are working part-time but would prefer to work full-time. Many people consider U-6 the “REAL” unemployment rate… although the Bureau of Labor Statistics gives that honor to U-3 and thus the Seasonally Adjusted U-3 is the commonly quoted “unemployment rate” in the media.
See: What is U-6 Unemployment?
Others believe that because U-6 includes “Part time workers who want to work full-time, but cannot due to economic reasons” it includes workers who have had their hours cut rather than being laid-off. It also includes workers who can’t find full-time employment. But many minimum wage employers do not hire full-time workers, so they don’t have to pay benefits. So are these part-time workers really unemployed? They may be “underemployed” but aren’t really unemployed. So a case can be made that U-6 is too broad and that the real unemployment rate is somewhat less than U-6.
Is U-5 the“Real Unemployment Rate”?
Slightly less inclusive, U-5 doesn’t include part-time workers who want to work full-time, but does include “marginally or loosely attached workers”, and those who “would like” and are able to work, but have not looked for work recently. A marginally attached worker is someone who has looked for work within the last 12 months but has decided to pursue other options, such as continuing their education or staying at home for other reasons. A discouraged worker is a subset of the marginally attached group in that they have given up looking for work for a specific reason i.e. they don’t feel there is any work avaliable for them anyway, so why bother looking?
Of this group, the question arises, if someone decides to go back to school are they really unemployed? A good case can be made that they aren’t really unemployed they are a “student”. I suppose they could be both discouraged and have therefore decided to go back to school to improve their skills, but in the long run is that a bad thing? After graduating, they will have higher value skills and thus be more employable and earn more over their lifetimes.
Is U-4 “Real Unemployment Rate”?
U-4 unemployment includes the labor force that has been unemployed for 15 weeks or longer, those who have just lost their jobs, those who have completed temporary work, those who have actively looked for work within the last four weeks and those who are discouraged and have therefore given up looking for work. It does not include students who were previously employed (U-5) or part-time workers who would like to be full-time. Many believe that this is the real Unemployment Rate.
Here is a sample of the Data Collected and how it breaks down (Data in Thousands):
|Total not in the labor force||86,049||88,697|
|Do not want a job now||80,120||82,271|
|Want a job||5,929||6,427|
|Didn’t search for work in the previous year||2,887||3,278|
|Searched for work but not in 4 wks||3,042||3,149|
|Not available to work now||530||632|
|Available to work now (marginally attached)||2,511||2,517|
|Discouraged over job prospects||1,037||802|
|Reasons other than discouragement||1,474||1,715|
|In school or training||314||329|
|Ill health or disability||121||177|
So from the above table we can see how the sub-sets work. Of the 88.6 million not in the labor force in September 2012 82.2 million do not want a job i.e. they are retired, stay at home moms, students, etc. That leaves 6.4 million that want a job. Of those, 3.2 million didn’t even look in the last 12 months. Of those that looked but not in the last 4 weeks (if they had looked they would be classified with the unemployed) 632 thousand are not available to work that leaves 2.5 million who are theoretically available to work but of those 1.7 million really aren’t available to work because they have family responsibilities, are in school or are disabled.
That makes me wonder about those who haven’t even looked for a job in a whole year. Theoretically they should be broken down into the same categories as those who have looked. How many are: Not available to work, have family responsibilities, are in school or disabled? If the same percentages hold as for those who have searched for work, only about 25% are really available for work.
John William’s Shadowstats tells us that “long-term discouraged workers were defined out of official existence in 1994.” The new U-6 numbers only include short-term discouraged workers. So they have developed an alternative measure estimating what they believe to be the real unemployment rate based on the pre-1994 system of measurement.
What is the True Unemployment Rate? – Is the Government Fudging the numbers?
Employment vs. Unemployment – Two sides of the same coin?
Source: U.S. Bureau of Labor Statistics- Household Data Not Seasonally Adjusted- Persons not in the labor force