Friday, September 5, 2014

America's Missing Unemployed

Updated November 2014

I have posted on this subject before but I'd like to revisit the concept of America's real unemployment rate, the rate that reflects the situation for millions of American workers.

Let's open with two definitions and two graphs.  First, here is the definition for U-3 unemployment, the unemployment statistic that most of us find in the mainstream media:

U-3 unemployment is defined as the percentage of the total workforce that do not currently have a job, have actively looked for work in the past four weeks (prior to the survey) and are currently available for work.  This measure also includes workers that were temporarily laid off and are waiting to be called back to work

Here's a graph showing what has happened to U-3 since 1980:


September's rate of 5.9 percent is the lowest level that U-3 unemployment has been since the beginning of the Great Recession but is still well above the average inter-recessional unemployment rate going back to 1990.

As many of you know, there is another measure of workforce participation that measures a broader spectrum of unemployment termed U-6.  Here is a definition for U-6 unemployment:

U-6 unemployment includes unemployed workers that are included in the U-3 statistics plus workers that are marginally attached to the workforce (i.e. they want a job and have looked for work without success sometime in the past 12 months but have not found employment) plus workers that want full-time work but have only worked part-time because the economy has not created sufficient full-time work (i.e. they are underemployed).

Here is a graph showing both U-3 in blue and U-6 in red:


As you can easily see, there is a vast spread between the two measures of unemployment, a spread that has been far higher since the end of the Great Recession that it was during the period from 1994 to 2008 as shown on this graph which subtracts U-3 from U-6:


This means that there are far more marginally attached workers and workers that are employed part-time for economic reasons since the end of the last recession than there were prior to the onset of the Great Recession.

If we look at a chart from the Bureau of Labor Statistics that supplies us with all six measures of labor underutilization, here's what we find for September 2014:


It is quite apparent how widely the measures of unemployment vary, depending on who is included and who is excluded.  In large part, by using U-3 as the headline rate, the unemployment picture looks far healthier than it really is. 

But, even the broader measures of unemployment lie U-6 don't tell the whole story.  Research by the Economic Policy Institute (EPI) adds another dimension to the unemployment picture; workers who are missing.  These potential workers are neither employed nor are they actively seeking work but would be looking for work or working if job opportunities were stronger.  Because jobless workers are only counted if they are actively seeking work, these missing workers are not reflected in any calculation of unemployment.

Here is a graph showing the number of missing workers since 2006:


EPI calculations show that there were 6.32 million missing workers in September 2014, the highest level since the Great Recession.

Here's what would happen to the official unemployment rate (U-3) if these missing workers were included in the Bureau of Labor Statistics data:


In September 2014, rather than the 5.9 percent headline U-3 unemployment rate, if we add in missing workers, the unemployment rate jumps to 9.6 percent as shown on the dark blue line.  On top of that, if we were to add in the workers that are marginally attached to the workforce plus the workers that are working part-time for economic reasons as included in the broader U-6 measure, you can see that we would have a real world unemployment rate in excess of 15 percent.

It is also interesting to note that the gap between the headline unemployment rate and the unemployment rate including missing workers has grown over the past eight years as shown on this graph:



Who are these missing workers?  There are 1.95 million missing male workers between the ages of 25 and 54 and 1.45 million missing female workers in the same age range.  These 3.4 million missing workers are in the prime working age range; this means that when these unemployed Americans do find work, they will have to make up for the wages that they have lost while unemployed and discouraged.  The likely result is that they will have to work far longer than what was once considered the normal retirement age and they will have greater difficulty paying for advanced education for their children, for consumer goods and for homes.

The monthly unemployment data release from the Bureau of Labor Statistics is, at best, misleading.  The rigidity of the data collection process has made it appear as though the United States economy is well on the mend when, in fact, millions of Americans who live on Main Street and who are classified as missing workers can testify that such is not the case.  Millions of formerly hard-working Americans now find themselves in the unenviable situation of being tossed aside and forgotten.


2 comments:

  1. I dont think this will improve anytime soon. But one thing I do see happening is that modest housing prices will be forced to decline in order to be purchased. Simple research by surfing sites like zillow show the huge difference between asking price and sold price. You can ask for any amount but to sell you have to find a buyer. So for the average American this might not be a bad thing long term, as long as the housing prices come down to make sense for the small earnings the average American is now earning.

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  2. What about the change to the U6 workforce in 1994 that significantly lowered it as the long-term "discouraged workers" have been dropped?

    See this post: http://marketpreview.silexx.com/unemployment-truths/

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