Digging into the ‘real' unemployment rate
Ph.D. May 4, 2012
The U.S. Bureau of Labor Statistics collects employment and unemployment statistics in two major ways. The first is the Current Population Survey, which is a household survey performed each month. These are the numbers which I use in my Northern Colorado economic reporting and are by place of residence (households). The other is the Current Employment Statistics (establishments-place of work) and are reported by employers each month to state agencies and forwarded to the BLS. The latter does not include self-employed persons and most agricultural workers.
The BLS also reports six different series of employment/unemployment statistics. U-3 is the statistic routinely reported by the news media. In March, the U-3 unemployment rate in the U.S. was 8.2 percent. The U-6 rate, however, was 14.8 percent.
The U-6 rate of unemployment is the 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. 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.
U-6 is the unemployment rate as bad as it can get using data collected by the BLS in its Current Population Survey. U-6 data is available for the U.S. and states, but not for metropolitan areas. The U-6 rate for Colorado was 15.4 percent in March vs. 8.7 percent for the U-3 rate. Colorado's unemployment was higher than the U.S. for both the U-3 and U-6 rates. The U-6 rate is usually just less than double the U-3 rate.
So the real unemployment rate, counting discouraged workers and underemployed part-time workers, is much worse than the official unemployment rate. In January 2000, the official unemployment rate in the U.S. was 4.5 percent while the U-6 rate was 7.8. The worst rate in 2000 was better than the current U-3 rate! Both the U-3 and U-6 rates for the U.S. took big jumps in mid-2008. U-6 was relatively stable between 7.5 and 10 percent from 2001 through mid-2008.
Even though the BLS data is not available for metropolitan or county areas, the U-6 rate can be estimated using total labor force data in its peak and comparing it to current employment. This underestimates the U-6 rate but is more accurate than the published U-3 rate. It should include discouraged workers who have quit looking for a job and, thus, are not counted in the U-3 labor force.
The labor force peaked in Northern Colorado at 303,118 workers in October 2008. It peaked in Larimer County at 180,378 workers in August 2009 and in Weld County at 123,724 workers in September 2009. As we can see, the greatest employment peaks in the counties of Northern Colorado did not correspond to the combined peak. Measured (U-3) employment in October 2008 was 8.2 percent; including discouraged workers increased that unemployment rate to 9.5 percent. The U-6 unemployment rate in October 2008 was 11.1 percent in the U.S. It averaged 9.2 percent in Colorado in 2008 and 13.7 percent in 2009. So, the unemployment situation was much better in Northern Colorado in the Great Recession than it was in either the U.S. or Colorado.
The actual plus discouraged worker unemployment rate peaked in Northern Colorado in January 2011 at 13.3 percent while the measured rate was 9.7 percent. The U.S. rate in that month was 17.3 percent and it averaged 15.4 percent in Colorado in 2010 (2011 data is not yet available). Again, we see that the unemployment situation was much better in Northern Colorado.
In March 2012, the actual measured unemployment rate in Northern Colorado was 7.7 percent while the discouraged worker rate was 8.8 percent. We still have not enticed all the discouraged workers back into the labor force. But the gap in the nearby chart is narrowing as the economy in Northern Colorado improves.
No one knows what the real unemployment rate is. We can only estimate it using data collected by the BLS. The BLS U-6 data is too unreliable for small areas like counties so is not reported, necessitating the above estimates.
John W. Green is a regional economist who compiles the Northern Colorado Business Report's Index of Leading Economic Indicators. He can be reached at firstname.lastname@example.org.
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