Will the Real Rate of Unemployment Please Stand Up

As the recession has deepened and the rate of unemployment has risen, a number of commentators have sought, for various reasons, to portray the situation as far graver than the “official” rate of unemployment indicates. Some of these commentators charge that the government is deliberately misrepresenting the amount of unemployment and that the “real” rate of unemployment is much greater than the official rate that the government announces and the news media report each month.

I have no desire to claim that the government never hides bad news—indeed, the extent of its blatant lies and outrageous propaganda ought to have provoked public outrage a long time ago—but in the present instance, I believe the critics are the ones who are misrepresenting the situation. If the government is hiding the bad news about unemployment that the critics are courageously “revealing,” it is hiding that bad news in plain sight. Since 1940, the Bureau of Labor Statistics has provided a variety of information on the population’s employment status derived from the Current Population Survey, a rather complicated, stratified random sample of  approximately 60,000 households conducted each month. A BLS website explains how the data are collected. From these data, various measures of the rate of unemployment may be, and routinely are, computed. Again, a BLS website lays out these measures for all the world to see, and it makes available the component figures for anyone who wishes to compute a differently defined rate.

Thus, in October 2009, the most recently reported month, the rate designated U-3, which is defined as “total unemployed, as a percent of the civilian labor force (official unemployment rate),” stood at 10.2 percent. The persons classified as unemployed in this measure, the most commonly reported one, are basically those who are not currently working but who have made an attempt to find a job in the past four weeks. By adding other categories of persons to those regarded as unemployed in the U-3 measure, one may arrive at greater rates.

The broadest such measure, designated U-6, is defined as “total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.” This rate stood at 17.5 percent in October 2009. A note attached to the BLS table of unemployment rates explains: “Marginally attached workers are 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. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.”

One does not need to devote a lifetime to studying how these statistics are defined and measured to realize that in many ways they tend to overstate how dire the unemployment situation really is. For example, the persons classified as in the labor force but currently unemployed must have actively sought a job during the past four weeks, but a wide variety of actions qualifies as evidence that they have actively sought a job, including: (1) “contacting:  an employer directly or having a job interview; a public or private employment agency; friends or relatives; a school or university employment center”; (2) “sending out resumes or filling out applications”; (3) “placing or answering advertisements”; (4)”checking union or professional registers”; and (5) “some other means of active job search.” So, if you are out of work and tell the CPS data collector that three weeks ago you asked Uncle Charlie whether he knew of any job openings, then you qualify as officially unemployed, even though you made no other effort to find employment. Many of those classified as “marginally attached workers” and included in the U-6 measure are even more questionable. After all, they admit that they are neither working nor doing anything to find work. Merely saying that “they want and are available for a job and have looked for work sometime in the recent past,” though not in the past four weeks, does not evince much genuine interest in employment.

Strange to say, many commentators have insisted, from the very onset of the current recession, that we are plunging into a second Great Depression. Perhaps we are, but the evidence to date does not confirm such a plunge. Yes, by taking an extremely loose view of what constitutes unemployment, we can say that perhaps one worker in six is now out of work. But in 1933, the official rate of unemployment was nearly 25 percent, and perhaps another 25 percent of the labor force comprised persons working part-time who wanted to work full-time, so the U-6 rate at that time (long before the requisite data for such an estimate were routinely collected) was in the neighborhood of 50 percent—and that at a time when workers’ earnings and assets were much less than they are now and hence long spells without work correspondingly more frightening. Small wonder if a typical scene from the early 1930s shows dejected workers standing on the sidewalk in a soup line, whereas the typical queue nowadays is more likely to show cheerful customers waiting to be seated in an upscale restaurant. The year 2009 may not be the best of years, but it’s miles away from 1933.

Robert Higgs is Senior Fellow in Political Economy at the Independent Institute, author or editor of over fourteen Independent books, and Editor at Large of Independent’s quarterly journal The Independent Review.
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