What Official Unemployment Numbers Tell Us…And Don’t Tell Us
By Justin Gardner | Related entries in Barack, Economy, Jobs, VideoThe following video includes an analyst from Forbes casually predicting that the official unemployment number will increase 50% from the current 6.7% to 10%. This speaks to the idea that we haven’t hit bottom yet and it’ll get worse before it gets better. However, underemployment is nearly double the current unemployment number at 12.5% and the highest it has been since we started measuring it in 1994. I’ll have more on that after the video…
What’s important to realize is that the actual unemployment rate could be significantly worse than just the number of folks drawing unemployment benefits. Because that’s how the official number is calculated. But many workers have simply given up looking for a job and no longer draw benefits. They’re not included in the official numbers.
So what would a true economic depression look like when looking at both numbers? Brad DeLong offers some insight…
U6–unemployed, plus discouraged workers, plus part time because they cannot find full-time jobs–is now at 12.5%.As the authority on such matters, I hereby lay down the law: No, we cannot call it a depression yet. We can only call it a depression when the headline unemployment rate–U3–kisses 12%, or when the headline unemployment rate stays above 10% for 36 consecutive months.
By the way, DeLong wasn’t actually trying to say he was the authority, just that this was his opinion. I just wanted to make sure you had some context for that comment since it sounded incredibly self important, but was meant to be tongue in cheek.
Here’s a bit more about how U3 and U6 are calculated…
U3 is the “official unemployment rate” according to the BLS website. Due to this, it is the current measure of Unemployment that gets focused upon by most media, and therefore the public. It has, over the years, slowly excluded many of the factors that USED to go into how the US reported unemployment. Hence, there has been a gradual decrease in the Unemployment rate that has occurred regardless of what was happening in the Jobs market.U3 is now comprised in a way that merely repeating it without a slew of caveats borders on fraud.
U6, on the other hand, is the broadest measure of Unemployment: It includes those people counted by U3, plus marginally attached workers (not looking, but want and are available for a job and have looked for work sometime in the recent past), as well as Persons employed part time for economic reasons (they want and are available for full-time work but have had to settle for a part-time schedule).
So is U6 a better indicator?
I think so and Krugman thinks so too…
The chart above shows the employment-population ratio, the ratio of employed Americans to the adult population. By this measure it’s been a weak economy all along — and now it’s falling off a cliff.
Thankfully, our current situation doesn’t look like it’ll be nearly as bad as it was during the Great Depression when U3 reached 25%, and that’s mostly because we didn’t allow the banks to fail. Still, the numbers continue to get worse and the trends don’t point to things getting much better without serious action being taken.
So when I warn that the consequences are dire if the government doesn’t get involved and do some significant deficit spending, all I’m doing is pointing out what every single economic indicator is telling us to do from a historical perspective.
You can certainly choose to ignore me and argue that the market should just reset itself, but you should also understand that what you’re advocating is exactly the same thing that plunged this country into a massive deflationary tailspin that only resulted in bigger deficit spending than if action had been taken to do something about it earlier.
In short, pay less now or pay more later.
The choice is yours.
This entry was posted on Sunday, December 7th, 2008 and is filed under Barack, Economy, Jobs, Video. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
December 7th, 2008 at 10:01 am
[...] up on my post earlier today about the difference between unemployment and underemployment, in May of this year Harper’s Kevin Phillips wrote about how we’ve been lied to about [...]
December 8th, 2008 at 10:14 am
Good stuff on this U6 chart (all new to me), but it’s showing just a 3-percent decline. It looks more drastic because the scale on the left goes only from 61 percent to 65 percent. Still, this is pretty enlightening.
December 9th, 2008 at 9:22 am
Mao’s revenge – a self-regenerating army of country girls in their prime, manning Chinese factories for 55 cents an hour, and working 12 hour shifts, 7 days a week, sleeping on in factory mats in 3′x6′ spaces, pooping in slot toilets, and eating at in factory dorms, who return to the peasant farms whence they came when burned out, to die an early and convenient death, pensionless and no economic burden to anyone. Have been taught by GM to build Buick LeSabres and Chevette like “Chery” cars! The docks in Shanghai are filling with these cars as we speak, and no matter how good the car deal is with the U.S. government, it will be used to phase out the American car worker and replace him by importing Chinese cars! The shareholders will overrule and make unbelievable profits! The smaller Eco-box is rumored to be sold at WalMarts for $6000.00 a copy, undercutting all other makes and models to dominate the market! Do not “Dream In Color”, this is the new reality in America! We have been sold out by the neo cons and George W Bush! Complete factories lock, stock and barrel, right down to the machinery on the floor, and complete with technicians notes, patent rights and shop procedures have been retailed to Asian countries, by the Uber-rich, for a fast buck! We with our high infrastructure costs cannot work for less than about $18.00 hour! In Asian countries, where very few infrastructure laws exist, a comfortable living is possible at $1.50 hour, and in communist countries, a slave labor wage with no benefits, not even running water in your peasant village retirement life, is considered a luxury! The American working class has been sold out by the Uber-rich, who no longer need them, and can purchase all the goods they want, manufactured in Asia for much less ! A sad but true reflection on Capitalism and current circumstances, isn’t it! Wake Up America, Last Call! Last Call!
December 11th, 2008 at 11:01 am
[...] already know that the underemployed rate (which is a FAR better indicator of employment) is at 12.5% and the economy is shedding jobs like only one other time in history. And it took the New Deal and [...]
December 12th, 2008 at 8:01 am
[...] can expect the unemployment numbers, which is a trailing indicator anyway, to start really as more and more companies find that access to funds is limited and so they begin [...]
January 10th, 2009 at 3:12 pm
To this day I’m confused by the term “job safety”
I guess that’s why I’m self employed and growing…
even in a bad economy.
Several years ago I made a decision that I wasn’t
going to take it anymore, then took charge and
responsibility.
Just a rational thought…
January 10th, 2009 at 3:13 pm
job security…
July 15th, 2009 at 5:21 pm
[...] been talking about this for a while now, and it’s encouraging to see some dead trees taking up the [...]