Tuesday, November 24, 2009

The 'Real' Jobless Rate: 17.5%

This CNBC.com story highlights for me one of the greatest difficulties in determining the state of our economy. I don't really care about stock market fluctuations or large scale matters to see what the economy is doing, although I understand that these are important matters. To me the health of the economy is people driven, i.e. what are the economic indicators on the ground and at the kitchen tables of people. Thus, things like unemployment rates, home mortgage defaults/foreclosures, savings rates, credit card balances, and take home pay matter much more to me than other types of figures.

But when it comes to defining some of those indicators, it becomes a bit hard. What is the unemployment rate--well that depends on who you are counting and that is difficult:
As experts debate the potential speed of the US recovery, one figure looms large but is often overlooked: nearly 1 in 5 Americans is either out of work or under-employed.

According to the government's broadest measure of unemployment, some 17.5 percent are either without a job entirely or underemployed. The so-called U-6 number is at the highest rate since becoming an official labor statistic in 1994.

The number dwarfs the statistic most people pay attention to—the U-3 rate—which most recently showed unemployment at 10.2 percent for October, the highest it has been since June 1983.

The difference is that what is traditionally referred to as the "unemployment rate" only measures those out of work who are still looking for jobs. Discouraged workers who have quit trying to find a job, as well as those working part-time but looking for full-time work or who are otherwise underemployed, count in the U-6 rate.

With such a large portion of Americans experiencing employment struggles, economists worry that an extended period of slow or flat growth lies ahead.
To me, there is a third measure that needs to be discussed, i.e. those who are simply out of work, whether they are actively looking or not. Underemployment may be a problem, but a great many of us may be underemployed but we are still drawing a paycheck--which is more than somewhere between 1 in 10 and 1 in 5 Americans are doing--depending on how the counting is being done.

But it is not just the numbers that matter, but who is unemployed. Increasingly we seem to be seeing otherwise employable people who would work in entry level jobs being without work. I know that employment is a lagging indicator, but when young people are out of work, they are not getting the skills they need to escape the "lay-off" danger zone later on, continuing the cycle.

So here's the thing--what is the real unemployment number. Are we getting good data and information from government sources? How do we define unemployment? Do you have to be actively looking for work? Does it matter how you define it when the number is around 15 percent?

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