Wednesday, November 11, 2009

What is the true unemployment rate?

The government says it's the U-3 measure, which stood at 10.2% as of November 5. Sceptics say it is the U-6 measure, which stands at 17.5%. But my suspicion is even higher, because of one piece of data contained in neither figure: labor force participation rate, which is 2.1% lower today than it was in 1999.

What that implies is that 2.1% of the U.S. population -- or roughly 3.15% of the available workforce, since children and the elderly are not counted in the available workforce statistics -- is not counted in the official U-3 measure. Now, clearly, some of these people are being counted in the U-6 measure. But how many?

Our clue is the U-4 measure, which includes "discouraged" workers -- i.e., unemployed, would like a job, but haven't sought a job in the past month. U-4 stands at 10.7%. That means that 0.5% of the U-6 measure is comprised of "discouraged" workers who are not counted in the labor participation rate but who are counted as unemployed in the U-6 measure. Thus U7 (U-6 minus "discouraged" workers) is 17%. Add in 3.15% for people who USED to be working and aren't working now, and you're at 20.15%.... uhm. Err. Bad. Last year I predicted that fireworks would start happening at 20%. Let's just hope that U-6 (what I was using then) is the correct measure for when fireworks start and that unemployment will start going down soon... because if not, cue the food riots and fascist revolution (Communism having gone out of style since 1932).

-- Badtux the Economics Penguin


  1. If I may ask a question, since you grok these numbers better than I do - How much has unemployment gone up in the last 18 to 24 months?

  2. Thanks to your efforts, I have spent more time thinking about the different measures of unemployment. Your analysis sounds fair.

    I still prefer the U-3 number as a better indicator of "how bad things are" because I personally know many people who would fit into your 2.1% number, or in the "discouraged" number, or in the marginally attached. And these folks are putting food on the table and are living just fine.

    What you have are people deciding to move back in with friends or parents. You have mom's supplementing household income who want to work more, but as a household, they do fine. Or you have people who are underemployed working harder to find room mates to save on housing. Or you have dual-income-no-kids folks who lose a job but are still better off than most. I know people in all these categories. It isn't doom and gloom for any of them.

    I'll stick with U-3.


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