CALIFORNIA BUSINESS MINUTE
Calculating Unemployment
07-23-09
Hi, I am Tim Johnson and welcome to the California Business Minute.
Unemployment in the United States is now worse than at any time since the
end of the Great Depression but you would have a hard time finding the
statistics to know it.
The official national unemployment rate hit 9.5% in June—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. Since December 2007, when the recession began, to June
of this year, over 6.0 million U.S. workers have lost their jobs. But there
is some fuzzy math attached to this number.
The Bureau of Labor Statistics, BLS identifies unemployment through two
measurements entitled U3 and U6.
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. Hence that is how the 9.5 percent national unemployment rate
is derived and for California its 11.6 percent.
As bad as these figures are, they 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 BLS
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 work,
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 an alternative unemployment measure that
goes a long way toward correcting the shortcomings of the U-3 official rate.
The broadest alternative measure, called “U-6,” known as the real unemployment
rate counts as unemployed “marginally attached workers” as well as those
employed “part time for economic reasons.”
Therefore the U6 measurement which accounts 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%.
Why is the U6 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. Nationally forced
part-timers are concentrated in retail, food services, and construction; about
a quarter of them are young workers between 16 and 24.
FEDERAL U-6 UNEMPLOYMENT RATES (June 1, 2009)
30% -- Young adults (all races age 18-29) with only a high school degree
30% -- U.S.-born Hispanic high school drop-outs (all ages)
32% -- Teens (all races age 16-17)
35% -- U.S.-born Hispanic young adults with only a high school degree
41% -- Black American high school drop-outs (all ages)
44% -- Black young adults with only a high school degree
47% -- U.S.-born Hispanic teens (age 16-17)
56% -- Black American teens (age 16-17)
In California, many of the forced part-timers are concentrated in government
specifically state workers. In June, the BLS counted 2.2 million “marginally
attached” workers. That matches the highest number since 1994, when the agency
introduced this measure. While numbers are still being calculated, a July 15,
2009 article in the New York Times illustrates California’s U6 unemployment
rate at 20 percent, comforting isn’t it?
I am Tim Johnson and this has been the California Business Minute.
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