The REAL Unemployment Rate

Economy in Numbers


The Real Unemployment Rate Hits a 68-Year High


Comparing the Bureau of Labor Statistics’ “U-3” and “U-6” rates.




By John Miller

Although you have to dig into the statistics to know it,
unemployment in the United States is now worse than at any time since
the end of the Great Depression.
From December 2007, when the recession began, to May of this year,
6.0 million U.S. workers lost their jobs. The big three U.S. automakers
are closing plants and letting white-collar workers go too. Chrysler,
the worst off of the three, will lay off one-quarter of its workforce
even if it survives. Heavy equipment manufacturer Caterpillar and giant
banking conglomerate Citigroup have both laid off thousands of workers.
Alcoa, the aluminum maker, has let workers go. Computer maker Dell and
express shipper DHL have both canned many of their workers. Circuit
City, the leading electronics retailer, went out of business, costing
its 40,000 workers their jobs. Lawyers in large national firms are
getting the ax. Even on Sesame Street, workers are losing their jobs.


Source: Table A-1, Bureau of Labor Statistics, U.S. Labor Department, www.bls.gov.



The official unemployment rate hit 9.4% in May—already as high as
the peak unemployment rates in all but the 1982 recession, the worst
since World War II. And topping the 1982 recession’s peak rate of 10.8%
is now distinctly possible. The current downturn has pushed up
unemployment rates by more than any previous postwar recession (see
Table 1).



Calculating the Real Unemployment Rate


The BLS calculates the official unemployment rate, U-3, as the number
of unemployed as a percentage of the civilian labor force. The civilian
labor force consists of employed workers plus the officially
unemployed, those without jobs who are available to work and have
looked for a job in the last 4 weeks. Applying the data found in Table
2 yields an official unemployment rate of 9.1%, or a seasonally
adjusted rate 9.4% for April 2009.


The comprehensive U-6 unemployment rate adjusts the official rate by
adding marginally attached workers and workers forced to work part time
for economic reasons to the officially unemployed. To find the U-6 rate
the BLS takes that higher unemployment count and divides it by the
official civilian labor force plus the number of marginally attached
workers. (No adjustment is necessary for forced part-time workers since
they are already counted in the official labor force as employed
workers.) Accounting for the large number of marginally attached workers and
those working part-time for economic reasons raises the count of
unemployed to 24.0 million workers for May 2009. Those numbers push up
the U-6 unemployment rate to 15.9% or a seasonally adjusted rate of
16.4%.


Some groups of workers are already facing official unemployment
rates in the double digits. As of May, unemployment rates for black,
Hispanic, and teenage workers were already 14.9%, 12.7% and 22.7%,
respectively. Workers without a high-school diploma confronted a 15.5%
unemployment rate, while the unemployment rate for workers with just a
high-school degree was 10.0%. Nearly one in five (19.2%) construction
workers were unemployed. In Michigan, the hardest hit state,
unemployment was at 12.9% in April. Unemployment rates in seven other
states were at double-digit levels as well.
As bad as they are, these figures dramatically understate the
true extent of unemployment. First, they exclude anyone without a job
who is ready to work but has not actively looked for a job in the
previous four weeks. The Bureau of Labor Statistics classifies such
workers as “marginally attached to the labor force” so long as they
have looked for work within the last year. Marginally attached workers
include so-called discouraged workers who have given up looking for
job-related reasons, plus others who have given up for reasons such as
school and family responsibilities, ill health, or transportation
problems.



Second, the official unemployment rate leaves out part-time workers
looking for full-time work: part-time workers are “employed” even if
they work as little as one hour a week. The vast majority of people
working part time involuntarily have had their hours cut due to slack
or unfavorable business conditions. The rest are working part time
because they could only find part-time work.
To its credit, the BLS has developed alternative unemployment
measures that go a long way toward correcting the shortcomings of the
official rate. The broadest alternative measure, called “U-6,” counts
as unemployed “marginally attached workers” as well as those employed
“part time for economic reasons.”

When those adjustments are taken into account for May 2009, the
unemployment rate soars to 16.4%. That is the highest rate since the
BLS began calculating the U-6 rate in 1994. While not exactly
comparable, it is also higher than the BLS’s earlier and yet broader
adjusted unemployment rate called the U-7. The BLS began calculating
the U-7 rate in 1976 but discontinued it in 1994 in favor of the U-6
rate. In the 1982 recession the U-7 reached 15.3%, its highest level.
In fact, no bout of unemployment since the last year of the Great
Depression in 1941 would have produced an adjusted unemployment rate as
high as today’s.




Why is the real unemployment rate so much higher than the official,
or U-3, rate? First, forced part-time work has reached its highest
level ever, going all the way back to 1956 and including the 1982
recession. In May 2009, 8.8 million workers were forced to work part
time for economic reasons. Forced part-timers are concentrated in
retail, food services, and construction; about a quarter of them are
young workers between 16 and 24. The number of discouraged workers is
high today as well. In May, the BLS counted 2.2 million “marginally
attached” workers. That matches the highest number since 1994, when the
agency introduced this measure.
With the economy in the throes of a catastrophic downturn,
unemployment, no matter how it’s measured, will rise dramatically and
impose yet more devastating costs on society and on those without a job
or unable to find full-time work.


John Miller teaches economics at Wheaton College and is a member of the Dollars & Sense collective.
Sources: U.S. Dept. of Labor, “The Unemployment Rate and Beyond: Alternative Measures of Labor Underutilization,” Issues in Labor Statistics, June 2008; John E. Bregger and Steven E. Haugen, “BLS introduces new range of alternative unemployment measures,” Monthly Labor Review, October 1995.

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