More on Unemployment

Yesterday I reminded everyone to check the U6 unemployment, which gives a better picture of the unemployment situation in this country. There’s another reason I forgot to mention, other than that it doesn’t ignore the chronically unemployed.

It’s being said that this is the worst unemployment in 26 years (which goes back to 1983). That’s true if one looks at the official rate over that period (BLS graph):

But the problem is, and I wish the old media would remember this, the official definition of unemployment changed in 1994, to exclude the chronically unemployed (who lack job opportunities in their area), which makes the situation look better. Not only does that mean that a slight decrease in unemployment does not automatically point to recovery (because people could just give up looking for a while and then be excluded), but it also means that the magnitude of the recession is ignored in media reports. Saying that this is the worst unemployment in only 26 years simply isn’t true. Using the U6 from 1994 to present and comparing that to the old official rate before 1994, which used roughly the same definition, we find that this is the highest unemployment since probably as far back as the Great Depression. This is probably the worst in 71 years.

The Bureau of Labor Statistics shows me only back to 1948, but between 1948 and 1994, the highest unemployment was in 1982, when it reached 10.8% unemployment. Compared to the present (U6) unemployment, 16.4%, it’s evident that you have to go back past 1948 to find a higher unemployment rate than now. So I’m pretty sure that means going all the way back to the Great Depression, when (if I recall correctly) unemployment reached 25% at one point. After a brief recovery, it climbed back to 19% or so in 1938.

But all that is obscured when the old media decides to ignore the 1994 definition change that artificially lowers the official unemployment rate by 7 points in the month of may.

This post originally appeared on Starboard Broadside.

US Unemployment at 16.4% (U6)

It’s the first Friday of the month, which means today’s labor report is out from the Bureau of Labor Statistics for last month. The U6 unemployment rate nationwide hit 16.4% for May 2009.

This is much higher than the normally quoted U3 rate, of course, in case that seems high to you. But as I explained when the February data came out, we should be looking at the U6 to get an accurate understanding of the situation. I encourage you to read that post, if you didn’t before, since understanding the difference between the “official rate” and the U6 rate is critical, in my opinion, to understanding the US economy, especially when we’re not in a recession.

I call the U6 “real” unemployment, just like people talk about “real” wage growth (which accounts for inflation).

This post originally appeared on Starboard Broadside.

United State of Unemployment

The New York Times has put out a cool interactive map of unemployment by US counties, as of December 2008 (Feb 09 unemployment was at 8.1%):
Go to feature
Click on the map to go to the full graphic.

There is, however, a major problem with this map that limits its overall usefulness. It’s great for just looking at how this particular recession is hitting various regions, which is what it was made for, but it’s concealing other issues. The graphic’s caption states, “Job losses have been most severe in the areas that experienced a big boom in housing, those that depend on manufacturing and those that already had the highest unemployment rates.” And it’s true that you can see this from the map. But that’s not good enough to get a real picture of current unemployment.

The map is based off what’s called U3 unemployment by the US Bureau of Labor Statistics, which is the “official” number. Since the recession in the early 1990s, this measure has been reworked for political reasons and is still the one that the media uses to report unemployment figures (released the first Friday of each month). U3 unemployment only counts a person as unemployed if they have been looking for a job sometime within four weeks of the time of the survey, which means that if people have given up looking for work, they don’t get counted as unemployed under U3.

Look at the map and notice that, with the exception of the perpetually dying state of Michigan, the Rust Belt areas of Pennsylvania/Ohio/Illinois/Indiana/etc don’t really seem too bad in terms of unemployment. If you were to go there right now, you would find massive economic devastation and chronic joblessness almost everywhere in the Rust Belt, where the industrial/manufacturing jobs have been flowing out of the country for years. The disconnect between reality on the ground and the map above is because of U3’s insistence on discounting people who have just given up altogether because there are no jobs, so there’s no reason to bother looking. People who are not looking but could work, haven’t looked recently but could work, and people who are working part-time (because the economy can’t sustain as many full-time jobs as workers want) all fall under various categories that are not included in the official rate, U3.

If you have ever wondered why unemployment during good times is so high in many European nations, compared to the US, you weren’t considering the way unemployment is measured in each place. It’s pretty difficult to compare unemployment statistics between nations because every government counts it differently. But Republican politicians frequently deride high French unemployment and blame it on SOCIALISM (!!!!) to score political points. Let’s look deeper.

The 2008 Bureau of Labor Statistics estimate for the average unemployment for the whole year was 5.8% U3 unemployment. France had a 7.4% estimated unemployment for the year. At the moment, of course, with the recession, the US rate climbed to 8.1% and France’s has presumably also climbed. But if we now add back all the other folks excluded in the official rate, as described above, the US rate jumps up. The U4, U5, and U6 rates add in more and more groups, until we come up with an accurate portrayal of the unemployment/underemployment situation. The U6 unemployment figure for the US currently stands at 14.8% nationwide, and even one year ago before the recession got going, it was a full 4.3 points higher than the “official rate” of 5.2% U3 unemployment. At that point, the French figure doesn’t look too bad.

So, what exactly does the U6 rate measure and why is it important to understand? The BLS describes U6 thus:

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.

NOTE: Marginally attached workers are persons 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 recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. 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.

 
From what I’ve read, this is very comparable to how the French government measures its national unemployment rate. It’s more honest, but it’s disheartening. It’s politically expedient to quote the U3 figure and move on to praising the American way. It’s also taken me WAY too long to explain this, which is why when the unemployment data comes out, only the official rate makes the news. What anchor wants to explain U6?

But when the official reports say we had only 7.2% national unemployment in December, it makes the map above look much better and much less permanent, and it means we don’t have to worry about the parts of the country that are often doubly and chronically worse off in joblessness. In reality, we’ve reached nearly 15% unemployment.

This post originally appeared on Starboard Broadside.