With each unemployment report release, pundits and press quote various unemployment rates ranging from 9.1% to 22.7%, and announce that is the real unemployment rate. What does that mean and how are they getting those other numbers?
First, the unemployment rate is well defined, a ratio and been set since 1994 by the same methods. The official unemployment rate is 9.1%. There are 13,931,000 official unemployed people in July 2011.
Yet the BLS gives an additional number, those who are not part of the labor force who want a job, currently 6.57 million people, and this group isn't part of the official unemployment rate.
Then there is yet another group of people who really want and need full time jobs who can only get part time ones. These people number 8,396,000.
To make matters worse, one hears the broader definition of unemployment is 16.1%.
The Civilian Labor Force and those considered not in the Labor Force, together, add up the non-institutional civilian population. The non-institutional civilian population are those persons 16 years and over, not in the military, locked up somewhere, hospitalized or in nursing homes. Below is a graph of the two categories which make up the non-institutional civilian population.
Then of those in the civilian labor force are two categories,the employed and those officially out of a job and looking, or the unemployed.
Below is the graph of those part-time, who are considered part of the labor force, employed, who could only find part-time work, divided by the monthly non-institutional civilian population. Even though population monthly increases are not seasonally adjusted and additionally have a yearly adjustment made between December and January, a pattern is clear, more and more people are being forced into part-time jobs.
Then, there is yet another measure, which comes from the category, not in the labor force. There are those not in the labor force who actually want a job. Within those not counted as part of the labor force who really want a job is yet another subgroup the marginally attached. The marginally attached are people not counted, considered not in the labor force, who actually looked for a job in the last year.
The BLS definition of marginally attached workers is:
Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.
A highly cited alternate measure of unemployment, or broader measure of unemployment is called U-6. What makes up U-6 is listed below:
Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons,as a percent of the civilian labor force plus all persons marginally attached to the labor force.
U-6 is currently 16.1%. U-6 is often referred to as a broader measure of unemployment. Below is a graph of U-6.
Graphed below are total part-time workers for economic reasons. They are working in part-time for either they had their hours cut back or they could only find a part-time job. In other words, they aren't working part time out of choice. This group is again divided by the non-institutional population, flawed as that monthly rate comparison is, to see the overall pattern. What we see is this has never been higher, including 1994, which the United States was still affected by a recession and jobs were scarce.
Below is a graph of the total reported people who want a job, who are not part of the labor force. The marginally attached is a subset of this group. The group is presented as a percentage of the monthly non-institutional civilian population.
As we can see this group as a percentage is fairly consistent and also was much higher in 1994. It has ticked up around 2008, but it doesn't have the dramatic increase that people shunted into part time jobs when they need full time has.
Currently the unemployed are 13.931 million, those who are employed, yet part-time for economic reasons are 8.396 million. Now, instead of using marginally attached, which is people not part of the labor force who actually looked for a job in the last year and derive U-6, let's add all of those not in the labor force who reported wanting a job, currently at 6,575 million. The marginally attached are part of these 6,575 million people. If you add of of these groups together, it becomes 28,902,000 people wanting a full time job, or any job. The non-institutional civilian population is 239,671,000.
What happens then to the unemployment rate if we include those who are not counted, not part of the labor force yet report they want a job? The problem with this calculation is one must add those 6.575 million to the civilian labor force (or the employed and official unemployed) in the denominator for this ratio to be valid. The civilian labor force for July 2011 was 153,228,000.
The July 2011 unemployment rate for those officially unemployed, part-timers who need full time and all of the people not counted who report they want a job:
If one takes those 28,902,000 and simply divides by the non-institutional population, the unemployment rate becomes 12.06% Now this number is invalid for obviously there are many people in this country who don't need a job, aren't looking for work for many reasons, a top one being retirement. The group not in the labor force means just that, so this calculation is inaccurate. There are 86,443,000 people not in the labor force who are part of the non-institutional civilian population.
What happens to the unemployment rate if we just add in these people who want a job, but aren't counted, as reported by the CPS, and don't count those who have part-time work? Then, the unemployment rate becomes 12.83%.
On all above ratios the denominator, civilian labor force did have added to it the amount of people being added who officially are not considered part of the civilian labor force.
ShadowStats claims the real unemployment rate is 22.7%. ShadowStats takes U-6 and estimates an additional tally of discouraged workers past the 1 year time window which currently defines the discouraged worker group. He calls them long term discourages and the BLS definition, short term discouraged workers. Additionally shadow stats tries to use methods from before 1994.
The number of people not in the labor force who want a job, reported by the BLS, is an actual survey question. Every month survey takers interview 60,000 people, so one would assume the results from this survey question would more accurately reflect longer term discouraged workers.
Bottom line, the situation is bleak, but hopefully this exercise for the reader explains a little bit more on where these unemployment statistics one hears quoted are coming from and what they assume.