A Deeper Look Into the Unemployment Rate

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If you pay much attention to the news, you’ll find yourself bombarded by the most recent unemployment numbers.

This percentage expresses the number of people considered in the labor force who are unemployed, available, and actively seeking work. The unemployment rate is a long-standing indicator of economic performance.

What the unemployment rate doesn’t do, at least according to many critics, is reflect many of the difficulties facing any given labor market.

Consider a person who lost their high-paying sales job due to downsizing, and now works part-time as an assistant manager at a bookstore until the market has need for their skills. According to the methodology used to determine the unemployment rate, a person in that situation is as employed as any other, despite making significantly less money than he or she used to.

To work around this problem, the Bureau of Labor Statistics publishes five alternative measures of “labor under utilization.” These measures are available in the monthly employment situation news release in Table A-15.

Two of the five are more restrictive than the unemployment index, and three are broader, capturing people left out of the standard.  The standard unemployment rate, which you see quoted everywhere is known as U-3.

The most recent standard rate, as of this writing, is 9.5%. This rate, and the rest in this article, is adjusted for seasonal changes. Three of these rates (U-1, U-2, and the official U-3) are available for periods dating back to 1948. U-4, U-5, and U-6 are available going back to 1994, the last redesign of the Current Population Survey.

The first alternative measure, U-1, expresses “Persons unemployed 15 weeks or longer, as a percent of the civilian labor force.” The standard unemployment rate, on the other hand, counts any unemployed person as the same, regardless of the length of their unemployment. Our current U-1 rate is 5.7%.

Measure U-2 looks at the number of “Job losers and persons who completed temporary jobs, as a percent of the civilian labor force.” In the standard rate, these individuals would be considered unemployed or employed depending on when in the survey period they lost their job. The U-2 measure does not include individuals who left their job voluntarily. Currently, U-2 stands at 5.9%.

Measure U-4 is where the measures begin to broaden.  U-4 measures “Total unemployed persons plus discouraged workers, as a percent of the civilian labor force plus discouraged workers.”

The standard rate considers “discourage workers” – individuals who have ceased looking for work because they do not believe they’ll be able to find any – as being “outside the labor force.” Measure U-4, however, basically includes them in the labor force and considers them unemployed. The U-4 rate in the United States currently stands at 10.2%.

Measure U-5 further broadens to include the unemployed and “marginally attached” workers – those who would like to work and are available to work, and have looked for work within the past year but not the past month. According to this measure, 11% of our population is currently out of work.

Measure U-6 is the broadest of unemployment measures. This measure includes all individuals in the U-5, and adds those individuals employed part time for economic reasons. If you include these individuals, then 16.5% of the US work force is currently underutilized.  Typically, these rates tend to rise and fall in tandem. As the BLS literature puts it:

While the alternative measures differ in magnitude from the official unemployment rate, they typically show very similar movements over the course of the business cycle.

In other words, all the measures of unemployment and underemployment generally give the same picture of the economy. When the numbers don’t move in tandem, it could signal an economic shift.

For example, a large loss of workers in a single industry might prompt measure U-2 to spike. A dropping U-2 rate may indicate that fewer jobs are being lost, and the economy will soon make better use of its labor force. A U-6 that is higher than normal in relation to its sibling measurements might indicate that many workers are looking for work in an economy that has no need for their skills.

Regardless of what metric you use, the current number is somewhat bleak. If you’re facing underemployment, consider a few of these ideas:

  1. Keep your credentials sharp by continuing your education. Sure, when you’re unemployed or underemployed, you should make a full time job of finding a job. But that doesn’t mean spending 8 hours every day searching postings and writing cover letters. Consider the next qualification that will polish your resume.
  2. Keep actively working your connections to the industry. With the wonders of internet job posting, many employers get hundreds of applications for any given position. If a reference or call on your behalf can boost you up to the top of the pile, leverage it for all its worth!

And last but not least, don’t let the numbers get you down. Sure, they paint a dire picture of the economy, but remember, the data collected always reflects the previous month. The numbers won’t show an economic pick up until after the fact.

In other words, there’s no way to quantify the type of hiring that’s going on right now in your area. So, if you’re one of the millions of Americans stuck between measures one through six, sharpen your skill set, polish your resume, and work your connections until you’re in the category outside all six measures: fully employed.

Published or Updated: April 4, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Many 50 somethings do not have an active career plan. Continuing education and self-study are central to improving your employability. Networking and using sites like Linkedin will also assist those make the most of available opportunities. Start now building and implementing your career plan. It will help on the job, help in changing careers, and importantly help in finding the right job.

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