According to Last Friday’s jobs report, a massive amount of
hiring occurred during September but as we discovered on my last posting, the
numbers do not fit with the tepid economic growth we are experiencing. We also observed that there still appear to
be a large number of people dependent on food stamps and other government
programs to survive. We also observed
that many who have experienced lengthy unemployment are going on Social
Security Disability. In this posting, we
will look at how the government determines the unemployment rate.
First, there are several different unemployment numbers but
only one is considered official, the U3 number.
However, I believe that number does not provide an accurate picture of
the true unemployment number. I also
believe that the other unemployment numbers, especially the U6 number provide
an unemployment number that is more in line with the economic growth we are
experiencing.
Here is a list of the different methods used by the Bureau
of Labor Statistics to determine who is unemployed.
U1
unemployment: Those who have been out of work for 15 weeks or more;
U2 unemployment: Those who have
lost jobs or have only been able to find temporary positions;
U3 unemployment: Those without jobs
that are available for work and actively seeking it. This is the official definition of
unemployment — the one we read in the headlines;
U4 unemployment: U3 + “discouraged
workers,” or those who have looked for jobs but feel they cannot find
employment because of economic conditions;
U5 unemployment: U4 + “marginally
attached workers,” or those who would like to find jobs but have not looked
recently;
U6 unemployment: U5 + part-time
workers who cannot find full-time jobs for economic reasons. This is the widest
definition of unemployment and gives the most accurate picture of the total
number of under-employed people. (1)
As we can see from these methods, the only number that
counts everyone either unemployed or under-employed plus those who have totally
dropped out of the workforce is the U6 number.
That is why I believe this number provides the truest picture of the
unemployed in our economy but before we use this number, we must test it to see
if it falls in line with other economic indicators. First, however, we must explain the labor
Participation Rate (LRP).
The LRP is defined as “The percentage of working-age persons
in an economy who: are employed or are unemployed but looking for a job.” (2) A decrease in the LRP means able-bodied
people are dropping out of the labor force.
These people are not counted in the U3 number so this decreases the
number of unemployed counted by the U3 number.
Since we are suspicious of the dropping U3 number we must now test the
U6 number to see if it shows a similar drop or, as we might suspect, does it
show us that unemployment is not going down.
There are two ways of testing the numbers. First, we can adjust the unemployment numbers
by factoring in the decrease in the LRP.
When we adjust the unemployment numbers by using the LRP when President
Obama took office we see that the U3 number is actually 9.8% up from 8.6% when
Obama took office. In other words, the
unemployment rate has increased, not decreased during the Obama Administration. This graphic illustrates the numbers when
adjusted by the LRP.
(3)
The U6 number remained unchanged in September at 14.7%. (4) If we had experienced the massive Job growth
the administration wants us to believe occurred in September, we should have
seen both of these numbers decrease. The
only mathematical reason for a decrease in the U3 without a subsequent decrease
in the U6 is that more people moved from the U3 to U4 or U5 and would be included
in the U6 number. This would result in a
decrease in the U3 with no change in the U6 since these people were part of
that number in August.
People moving from U3 where they receive unemployment
benefits into U6 where they do not receive these benefits would seek assistance
through other programs such as food stamps or SSI Disability. This would explain the drop in U3
unemployment with a high level of people remaining on food stamps and going on
disability.
My conclusion is that the Lower U3 unemployment in September
does not mean the economy is improving.
When we look at how unemployment is counted, we discover that during a
lengthy period of high unemployment many become discouraged and give up looking
for work. That is why during periods of
lengthy unemployment, we should give greater attention to the U6 number. Therefore, after the release of the monthly
unemployment numbers that come out the first Friday of the following month, I
will be giving the U6 number instead of the U3 number given by the rest of the
media.
1. Filip, Jake. Your Ultimate Cheat Sheet To
Unemployment Numbers. wallstcheatsheet.com. [Online] Wall St. Cheat
Sheet, September 3, 2010. [Cited: October 9, 2012.]
http://wallstcheatsheet.com/economy/your-ultimate-guide-to-unemployment-numbers.html/.
2. Moffatt, Mike.
What is the Labor Participation Rate? economics,about.com. [Online]
About.com. [Cited: October 9, 2012.]
http://economics.about.com/od/unemploymentrate/f/labor_force.htm.
3. The Heathen
Republican. 7.8% Election Unemployment Rate: Q3 2012 Analysis. heathenrepublican.blogspot.com.
[Online] The Heathen Republican, October 6, 2012. [Cited: October 9, 2012.]
http://heathenrepublican.blogspot.com/2012/10/78-election-unemployment-rate-q3-2012.html.
4. Luciano, Michael.
Real Unemployment Rate: U6 Rate Stays at 14.7 Percent, as U3 Falls to 7.8
Percent. www.policymic.com. [Online] Policymic, October 6, 2012. [Cited:
October 9, 2012.]
http://www.policymic.com/articles/15908/real-unemployment-rate-u6-rate-stays-at-14-7-percent-as-u3-falls-to-7-8-percent.
No comments:
Post a Comment