The Jobs Report and the Different Ways to Measure Unemployment... (1117009)

After Friday's post on the June jobs report, an astute reader pointed out that the unemployment rate doesn't count, among other things, workers who have gotten discouraged and given up on trying to find a job and workers who would like to be working full time but can only find part-time work. While this is, in fact, true about the main unemployment figure, such concerns are not falling on deaf ears over at the Bureau of Labor Statistics.

The BLS actually calculates six different versions of the unemployment rate, labeled U1 through U6. U3 is the main unemployment rate that is cited in news reports and such, but then we've got 3 "supersets" of unemployment, if you will:

• U4: counts unemployed people (U3) plus "discouraged workers" who have given up looking for work because they are convinced that they can't find jobs
• U5: counts everybody in U4 plus "marginally attached" workers who would like to work if work was made available but haven't actively looked in the past 4 weeks
• U6: counts everybody in U5 plus "underemployed" people who want to work full time but can only find part-time jobs

Many people have been saying that the main unemployment number misses a lot of what is actually going on in the economy, and, given that U6 is at 14.3 percent for June (almost twice the main measure), they are likely correct. Some people are also claiming that the underemployment problem has gotten worse recently. Fortunately, this is something that we can investigate using data! Consider a nifty tool that gives monthly tables for U1 through U6. You will notice the following:

• While U3 remained unchanged from May to June, U6 increased from 13.8 percent to 14.3 percent.
• For this same period, U4 increased from 8.0 percent to 8.2 percent.
• For this same period, U5 increased from 8.8 percent to 9.1 percent.

Mathematically, it seems like the underemployed workers account for a lot of U6 compared to discouraged and marginally attached workers, but this is a little misleading due to the details of how the rates are calculated. (The crux of the issue is that underemployed workers are always counted as in the labor force whereas the other categories are not.) Looking at the month to month changes, it also doesn't appear that underemployed workers account for the majority of the increasing spread between the official U3 measure and the more all-inclusive U6 measure.

That said, the BLS reports that the number of underemployed people increased by 322,000 to 8.2 million in June*, so it appears that underemployment is a problem worth looking at, but it's important to keep in mind that it's not the only problem that labor markets face.

* big numbers can look small in percentage terms with the base is a labor force of over 155 million!

Source: http://economics.about.com/b/2013/07/06/the-jobs-report-and-the-different-ways-to-measure-unemployment.htm

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