The Unemployment Rate Is Worse Than You Think

Graph_down I have been telling students in my employment law class for years that the reported unemployment rate that so many in this country depend upon is a farce and does not nearly capture the full number of the people without jobs or underemployed in the United States.

Daniel Gross of Slate does a nice job explaining this latest form of voodoo economics:

It’s hard to overstate the poor numbers coming out of Wall Street in recent months. But could it be that we’re overstating the gravity of the situation? As job losses have mounted and consumer confidence has plunged, policymakers, news organizations, econo-pundits, and even some of my Slate colleagues have noted that the unemployment rate, which rose to 6.1 percent in September, seems to be at a nonrecessionary, noncatastrophic, low level. The unemployment rate is still below where it was in 2003; and between September 1982 and May 1983, the last very deep recession, it topped 10 percent . . . .

But maybe the employment data are much worse than they seem.

In the past year, the two key measures of employment — the unemployment rate and the payroll jobs figure — have been poor but not awful. The unemployment rate has risen from 4.5 percent a year ago to 6.1 percent. And in the first nine months, 760,000 payroll jobs were lost. This is unwelcome but not catastrophic. So why do things feel so bad? It’s not because, as Phil Gramm suggested, we’re a nation of whiners. And it’s not a matter of columnists and spin doctors shading the numbers to make things look worse . . . .

Rather, these two figures are undermeasuring the weakness in the labor market. By some measures, in fact, the job situation is worse than it has been at any time since 1994.

Here’s why. Back in the 1990s, the Bureau of Labor Statistics recognized that in a changing economy, in which outsourcing, self-employment, and contracting were becoming more commonplace, the traditional methods of measuring unemployment and job growth might not accurately portray the economic situation. And it knew its methodology had some quirks — the unemployment rate doesn’t account for people who have given up looking for jobs, or who have taken themselves out of the work force. So since 1994, the BLS has been compiling alternative measures of labor underutilization. There are many different varieties of labor underutilization. There are marginally attached workers: “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.” There are discouraged workers, a subset of the marginally attached crowd, who have “given a job-market related reason for not looking currently for a job.” There are people who work part-time because they can’t find — or their employer can’t provide — full-time work. There are people who have left the work force entirely. Neither the unemployment rate nor the payroll jobs figure captures the plight of many of these folks.

And the alternative labor underutilization measures show a lot of stress. The data on people not in the work force show the number of people not looking for work because they’re discouraged about finding jobs has risen from 276,000 in September 2007 to 467,000 in September 2008 — up 70 percent. The percentage of people unemployed for more than 15 weeks stood at 2.3 percent in September 2008, up from 1.6 percent in September 2007, a rise of nearly 45 percent.

You can thank me for all this wonderful news later, but for some reason our government has a hard time leveling with us exactly how bad our economy has become.  Consider this a public service announcement from yours truly.

Cross posted at Workplace Prof Blog.

This Post Has One Comment

  1. Greg Beckham

    Since unemployment is so woefully underreported, and when in turn, these flawed figures are used in economic forecasts, economic recovery is significantly delayed.

    Increasing unemployment exacerbates the feedback loop that this economic crisis has devolved into, and without clarity and honesty about the the extent of the problem we can’t even begin to repair it.

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