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Eli Lehrer


Is The Real Unemployment Rate 40 Percent?

Posted: 07/06/2012 5:21 pm

It all depends on who is in office: when George W. Bush oversaw an economic recovery as president, liberals pointed to alternative unemployment numbers to cast doubt on his economic policies. Now that a liberal president sits in the White House conservative news sites, bloggers and think tanks point to the broader U-6 unemployment rate (which stands at 14.9 percent) and the discouraging numbers released yesterday to show that President Obama's economic policies aren't working.

Although I agree with almost all conservative critiques of President Obama's policies, there's also a good case that the widely reported 8.2 percent unemployment rate (the U-3 as its keepers at the Bureau of Labor Statistics call it), is a pretty accurate yardstick for the state of working America.

To begin with, measuring "unemployment" is hard. Currently, only about 60 percent of all people over 18 hold jobs. By this measure -- the broadest one possible -- the "real" unemployment rate is 40 percent. But it's ridiculous to think that. Most people who don't work are in school, staying home to raise children, or retired. Thus, government statisticians have the difficult task of trying to measure people who want to work but can't find anything.

And this requires some judgment calls. In fact, only a little more than half of those counted as "unemployed" actually lost a job anytime in the recent past and now want another one. This is measured by the U-2 unemployment rate that currently stands at 4.6 percent. (Down .5 of one percent in the past year). The other 45 percent of the 8.2 percent of the "unemployed" workforce consists of people who, for one reason, or another didn't have a job in the recent past but want one now. While it's certainly desirable for all of these people to find work, not all of them meet conventional images of unemployment. For example, the widely reported unemployment rate includes full-time students seeking part-time work and people who have never held a job of any sort and are looking for one.

Many other categories of "unemployment" tracked by the government and included in the broadest measures of unemployment stretch the definition of "unemployed" even further. For example, while part time workers who want a current employer will give them more hours but aren't making an effort to find another job face a difficult situation, they aren't really "unemployed" even if they get counted in the U-6. And much-discussed "discouraged workers" who have stopped looking for work comprise only half of one percent of the total labor force. (And, since becoming "discouraged" typically results in the loss of unemployment benefits, many people who fall into this category actually have other sources of income and may not have had a major economic need to work in the first place.)

On the other hand, some individuals left out of even the broadest current definitions of "unemployment" would still prefer to work. For example, 65 year olds who lose their jobs may decide to "retire" even though they would have happily considered working in the same job for years. Some people receiving government support payments for disabilities, likewise, would probably return to work if given the proper opportunities and incentives.

In the end, a great deal of the unemployment picture depends on exactly how one counts. The current measures of unemployment, while far from perfect, are a good enough way to determine the state of the labor market. They aren't kind to the White House's current occupant. But the "real" unemployment rate is, indeed, 8.2 percent.


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