The happenings "inside" the Wisconsin State Treasury and across the street at the State Capitol

The Economy and You #4 – Who are the Unemployed?


Previously, I wrote about how the unemployment rate is calculated and whether it is an accurate measure of the health of our economy.  Did you know that there are a number of ways to determine how many people are “unemployed?”

In my last article, I explained that the Household Survey conducted by the Bureau of Labor Statistics places all adults into three categories: 1) employed; 2) unemployed; and 3) not in the labor force.  The Bureau of Labor Statistics also calculates several measures of labor underutilization or unemployment.

The first rate (U-1) measures only those persons considered to be long-term unemployed.  U-1 Is defined as persons unemployed for 15 weeks or longer, as a percent of the civilian labor force. Using data from November 2008, the U-1 rate was 2.6%.  With each successive rate, additional people are included in the calculation.

For the U-2 rate, the calculation includes job losers and persons who have completed temporary jobs, as a percent of the civilian labor force, but excludes people who leave their job.  The U-2 rate was 3.9%.

The official unemployment rate or U-3 is defined as the total amount of unemployed persons as determined through the household survey.  The U-3 rate in November 2008 was 6.7%. This is the unemployment rate you hear or read about in the news.

The U-4 rate calculation includes the total unemployed, plus discouraged workers, as a percent of the civilian labor force plus all discouraged workers.  Discouraged Workers are persons who have given a job-market related reason for not currently looking for work.  The U-4 rate therefore is greater than the official unemployment rate with the addition of discouraged workers, who from the household survey would be classified as not in the workforce.  The U-4 rate was 7.0%.

U-5 includes total unemployed, plus discouraged workers, plus marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers. Marginally Attached Workers are persons, 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 recent past.  Again this increases the total amount of people who want to work but would not be classified as unemployed from the household survey.  The U-5 rate was 7.8% in November 2008.

Finally, the most inclusive unemployment rate or U-6 measures the total number of persons unemployed, plus discouraged workers, plus marginally attached workers, plus persons employed part-time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers. Persons employed part-time for economic reasons are those who want and are available for full-time work but have had to settle for part-time work.  These people would be considered employed even though they want and are able to work full-time.  Including all of the persons who want to work increases the rate significantly to12.5%.

As you can see, economists can point to a variety of statistics when talking about unemployment and labor underutilization.  Because of this, policy decisions regarding unemployment insurance, tax credits for job creation, and other labor initiatives may have little effect on the official unemployment rate, but could have a noticeable effect on the other measures of unemployment.  All in all, government leaders must recognize that the official unemployment rate does not provide a complete picture of the health of our economy.

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