Tuesday, December 1, 2009

“Real” unemployment rate in US is 22%

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The media and government officials often tout the unemployment rate using the official, or U3 rate, which stands at 10.2% for October. While 10.2% unemployment is certainly bad enough – it’s the highest rate nationally excluding 1983s 10.8% - it pales when compared to the U6 unemployment rate. First let’s discuss the differences between U3 and U6 measures.

According to the Bureau of Labor Statistics (BLS) the U3 measure is described as “total unemployed, as a percent of the civilian labor force (official unemployment rate).” Now let’s take a look at the BLS U6 measure: Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

When including marginally attached workers and those forced to work part-time instead of full-time we have a national unemployment rate of 17.5%, which is nearly 70% higher than the U3 rate of 10.2%. That’s a dramatic increase from the normally quoted U3 unemployment rate, but even U6 fails to provide the actual percentage of people who are, or may be considered unemployed.

John Williams discusses alternative unemployment data sets at his Shadow Government Statistics site. Their service, in part, “exposes and analyzes flaws in current U.S. government economic data and reporting.” Once those flaws are included in the unemployment calculation – called the SGS Alternate - the unemployment rate reaches 22%. Shadow Government Statistics gives the following reason for SGS Alternate measure: “The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated “discouraged workers” defined away during the Clinton Administration added to the existing BLS estimates of level U-6 unemployment.”

To clarify why the discrepancy between U6 and the SGS Alternate rate of 22%, I contacted the BLS and received the following answer to my question about the change in discouraged worker designation during the Clinton Administration:

“(P)rior to 1994 persons were not asked whether they had searched for work recently. If they gave one of the five “discouraged worker” reasons for not looking for work in the past 4 weeks, they were assumed to have “given up” the search for work, although they weren’t asked when they had last looked. As a result of the greater specificity introduced in 1994, the number of discouraged workers was cut approximately in half, from about 1.1 million in 1993 to 500,000 in 1994.”

About 600,000 people were removed from the unemployment calculations in 1994, so if you merely add those 600,000 to the current U6 number, the rate of unemployment would be much higher than 17.5% and would more accurately be reflected in the SGS Alternate unemployment rate of 22%.

The BLS now offers the U6 measure of unemployment for states. An example is New York’s U6 rate averages 13.4% for the period fourth quarter of 2008 through third quarter of 2009 at: Alternative measures of labor underutilization by state. So making the simple assumption that the SGS Alternate data is, on a national level, about 4.5% higher than U6, the unemployment rate in New York is closer to 17.9%, and that’s being conservative since the current unemployment rate is higher than the average presented at the BLS.

When nearly 1 in 5 eligible New York workers are either unemployed or underemployed, we are made aware of the brutal state of employment. Maybe it’s time to spend more money on job creation, instead of pumping billions of dollars into the coffers of banking bonus babies and corrupt banks and institutions that were made too big to fail by two presidential administrations more concerned about campaign money than taxpayer needs.

A sliver of good news, according to John Williams, is that during the Great Depression the SGS Alternate measure of unemployment would likely be near 34%. Let’s hope our elected “representatives” don’t aim for those lofty unemployment levels.

If you would like to follow my Examiner.com posts, they are located at Rochester Unemployment Examiner’s Articles.

“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.” – Frederic Bastiat (1801-1850)

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