Wikinvest Wire

The real unemployment rate?

Monday, June 08, 2009

For many months now I've been wondering why so many people call the Labor Department's U-6 measure of labor underutilization the real unemployment rate, as if, somehow, people settling for part-time work are without a job at all.
IMAGE Sure, they may want to be employed full-time, but you don't always get what you want, particularly during times like these. Saying that the unemployment rate was really 16.4 percent in May and not 10.6 percent (which is probably a far better measure than the "official" U-3 rate of 9.4 percent) strikes me as being just plain wrong.


Anonymous said...

It would be interesting to see a plot of U4-U3 = % of discouraged workers (the despair index, you could call it), during recession cycles. Is .4% high or low compared to the early '80s?

Nick said...

"Discouraged" workers is an intentional misnomer: it really means unemployed for a long time. I'm not sure why they just didn't call them "long-term" unemployed, other than it would have not been obtuse enough.

I agree with you, though, Tim... the number used by the educated populace should be U4 or U5, not U6. U6 does give a good indication of the percentage people people being affected by employment conditions in the recession, but it's certainly not the number of people out of work entirely. Maybe if the government was not so intent on lying about the numbers toward the downside, people wouldn't be so quick to assume the worst is the reality.

Ted S. said...

I think they should add a U-7 that would include people who are still employed full-time but are making significantly less than they did a couple years ago. That rate would probably be about 25 percent!

dangermike said...

I think the reason people include marginally attached workers is that many of them, particularly in here in southern California, can't make ends meet without tapping into savings and/or taking on second and third jobs.

Consider a buddy of mine: he made a decent living for about 20 years as a neon sign crafter. He works for one of the larger sign manufacturers doing custom signs. The demand in his trade fell off with eveything else a couple years ago. He has a second job as an usher in a local sports arena which kept his head above water when they cut him back to 4 days a week (during the same time they laid of 60-70% of their craftsmen). But about 4-5 months ago, they cut him back to 2 days and even with that second job, the ends just aren't meeting. In that time, I haven't seen him except when he happens to pick up a third day and clock more than 20 hours in a week.

Brandon Chapman said...

Everyone focuses on the underemployed, but nobody accounts for the distortional effects that unemployment insurance creates. How many people remain unemployed by choice in order to keep benefits streaming. The opportunity cost of the labor/intellectual capital sidelined as a result of subsidy is never accounted for. The greater the unemplyment benefits the more overstated this number becomes.

Anonymous said...

Brandon and the author of this little piece. Only someone who has forgotten, or has never attempted to live on anything less then $30,000 would even ask the question or entertain the notion that people are enjoying coasting on unemployment insurance.

Why don't you guys cut your spending in half for 6 months and then come back and tell us what it was like for you? How you enjoyed it. How your wifes reacted, if you stay married...

Let me guess, you guys live in Limbaugh Land.

Bruno T said...

Ok, Tim. I think your personally strong financial situation (and ability to live for years w/o a job or business income) has colored your logic on this one.

Say your family's monthly nut to exist is a very modest $3,000. You lost your job(s) paying the median income of $50,000 a year.

You "don't always get what you want" but manage to find two part time jobs paying a total of $300/week to try to make due. (Let's say you're delivering chinese food and working a weekend shift at Home Depot, both with zero health benefits). You of course cannot collect UIC while working and making this much, and your higher COBRA health insurance payments more than offset any lifestyle cuts you can make in your budget, so your monthly nut stays at $3,000.

Your net monthly inflow after payroll taxes and such is now about $1000/month. You are now hemmoraging $2,000/month. You were, like most Americans, not able to amass 6 months living expenses in reserve on your low median income, despite your modest lifestyle.

So, you've run through your modest savings and you're broke within a month. Your car (and ability to earn anything) will be repo'd in say 60 days. Your home will be in foreclosure in another month or two. You'll be homeless in a couple more months.

So, are you feeling employed or unemployed? By the standard you chose, it has to be one or the other. (10% or 16%).

For those of us with significant assets, unemployment is a time to catch up on the tan while we worry. For those without, part time employment only briefly delays the exact same disasterous result(losing it all).

Being employed part-time should be counted as just that, "part time" and be given a mathmatical equivilent of holding at most 1/2 of a job. How hard is that to figure out statistically?

So for calculating how bad things are the number should be about 13%, not 16% or 10%.

But I would really disagree that the 16% number is more "wrong" than the 10% one. Because nothing sucks more than working some crummy part time job for peanuts. That's one reason why many Americans choose to stay on Unemployment as long as possible rather than work a part time (or full time) job that barely pays more than that.

Tim said...

Touche - I think the 13 percent figure is better than either the 16 or 10.

Part of the problem here is that, it hurts most people much more than it otherwise should due to a very low saving rate over the last ten years. What the U.S. is going through now is a very painful adjustment - going from spendthrifts to savers - something that I often times forget.

Vanessa said...

Speaking of the employment situation, Junior Achievement just put out a new report about how the country needs a more "Entrepreneurial Workforce" to remain competitive. It's kind of a different way of looking at the problem. Here's the link

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