Real Unemployment Rate Explained

by Darwin on July 11, 2012

You’ll often hear about a horrible jobs number and then get an update that the jobless rate hasn’t budged, or in some cases, actually improved.  How can this be?  Well, because the “official” government reported figure grossly underestimates those out of the workforce because it simply stops counting people in the denominator who have given up and stopped looking.  So, the 23 year old who threw in the towel and resigned himself to living in the basement at mom and dad’s?  He doesn’t count as unemployed.  The 61 year old who was nowhere near retirement capability after losing half his money in his 401(k) and half his home equity?  He’s not counted either, even though he can’t get a job.  With this in mind, the mainstream media reports an 8.2% unemployment rate, but the real rate is actually 14.9%.

 

U-3 vs. U-6 Government Data

 

The government reports the U-3 number which is defined as the following: U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)

While the real unemployment rate is also reported by the Bureau of Labor and Statistics as the U-6, only a select few media outlets and financial analysts reference it.  But here’s that definition: 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 – NOTE: Persons marginally attached to the labor force are those 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 past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. 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. 

 

Here’s a screenshot of the country’s horrible jobs picture or you can click here to visit the BLS website and see for yourself.

Why would the government insist on reporting U-3 rather than U-6 even though U-6 is clearly more relevant?  Think about that for a moment.

Now, here’s the chart that will really blow your mind.  You figure with all these hope and change youngsters entering the workforce over the past few years and the “recovery” we’re in right now, that with a declining reported unemployment rate, we’d have an increasing percentage of Americans getting back to work, right?  Check this out.  We have the same % employment as we had DECADES AGO.

total-employment-chart

 

Let me say that again.  On a percentage basis, we are worse off from a proportion of working population standpoint than we were in the early 80s.  Now that is something to think about.

 

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